```Quantitative Trading
ARI SIEGEL
PRINCIPAL
TURNING WHEEL CAPITAL
[email protected]
What is Quantitative Analysis?
 “A business or financial analysis technique that seeks to
understand behavior by using complex mathematical and
statistical modeling, measurement and research. By assigning a
numerical value to variables, quantitative analysts try to replicate
reality mathematically.” – www.investopedia.com
 Observe behavior
 Counting
 Statistics
 Price movement vs. technical vs. fundamentals
 Market moves may not repeat, but they often
rhyme
Where quants work
 Hedge Funds
 Banks
 Self
 Sell side
 Derivatives
 Hedging
Quant Roles
 Programmer
 Analyst
 P/L vs. non-P/L
 Strategy generation vs. analysis and
programming
 Execution
 Discretionary
 Proprietary
 Market Maker
 Floor
 Speculator
Direction
Size
Entry Price & Strategy
Hold time
Risk Management
Exit Price & Strategy
Act on Analysis
P/L Responsibility
High Compensation
Long Hours
Ever-morphing puzzle
ANALYST
YES
NO
?
YES (ROUGH)
NO
YES
NO
?
?
YES
YES?
How to find a Quantitative trade
 Idea (observation, original thought)
 Data collection
 Price/technical/fundamentals database
 Charts
 Internet
 Other resources
 Data scrubbing
 Testing – pencil/paper, Excel, statistical software
 Trade it in small size for some time
 Scientific method
Statistics
 Conditions
 Forward expectation
 Average move (Mu)
 Standard Deviation (s)
 # of observations (n)
 T-score = Mu / (s/SQRT(n))
 Regressions, neural networks, AI
 Conditions
 Short
term
 Long term
 Seasonal
 Intermarket
 Test
 Compare to other patterns, current data
Create a plan
Direction
Size
Entry (Price, Time)
Exit (Price, Time)
What ifs
 Entry issues
 Unusual moves
 What ifs
 New data – change the plan?
 Exit issues
 P/L
 Short
vs. Long
 Decisions – overrides, adds, longer holds,
etc.
 Optimize
 Evolve
 Black box vs.
 Human execution
 System vs.
 Discretionary
 Unusual circumstances
 Changing Cycles
 Efficient Markets???
NOT
ALWAYS!
 What are futures?
 Physical vs Financial, delivery vs cash-settled
 Index futures
 S&P 500 futures=
 Very liquid
 Very transparent (marked-to-market each day)
 Low commissions (\$2.40 per \$74,000)
 High leverage
 Low barriers to entry
 Managed futures
My Company – Turning Wheel Capital
 Manage money for outside clients and myself
 Began Jan 1 2007 with \$25,000 of my own \$ while
working at a hedge fund
 August 1 2007 \$62,000 in assets, my own \$
 November 2007 \$1.2MM in assets, 3 outside clients
 Goals
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February 2008 \$3MM AUM
November 2008 \$10MM
December 2009 \$100MM
My background
 Victor Niederhoffer 2004-2007

apprenticeship
 MBA, Yale SOM 2004
 Start up companies 1999-2002
 Poker 1997-1999
 Start up companies 1994-1997
 Music 1988-1994
 NYU B.A. Music Technology 1992?
 UNC-Chapel Hill 1987
Money making personality
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Appetite for risk
Analytical mind
Competitive
Driven to win
Sports, Poker, Games
Survivor
 Puzzles, games
 Counting
 Logical, analytical, problem solving
 Music
 Patterns
Be a star
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Figure out what you truly want – 95% of the game
Be honest with yourself and others
Take risk – but try to weigh consequences
Hold out for what you want – don’t settle
Trust your gut – have conviction
Do your own research – question the experts
Don’t be a sheep
Try to be the best in your field, reach for brass ring
Focus on the process and the results will come
800% return in 2007
Market Wizards by Jack Schwager
Questions?
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