Quantitative Trading: How to Build Your Own Algorithmic Trading Business 1st Edition

Quantitative Trading: How to Build Your Own Algorithmic Trading Business (Wiley Trading), is a book written by a practitioner for practitioners. A mix of practical advices, some sample code, and a fair amount of experience, this book is a good summary, although a bit unstructured, what one needs to think about when it comes to starting your own quant trading firm or simply running your own capital in a systematic way.While there is no ready-made, plug-and-play strategies inside the book, it does contain a number of potential strategy ideas that is worth testing. Chan is mostly focused on long/short equity strategies, mostly because that's is where he has his background. A good read, would read it again.

Update 1/15/16 - I've upgraded my review from 3 stars to 4 stars. I'd give it 4.5 stars if it was available and the only thing that would prevent me from giving it 5 stars is the title. It is a bit misleading and if it included a preface that stated having experience with MATLAB is almost a prerequisite for the book. Fortunately, this book got me into MATLAB which is a piece of software I haven't used since I was in engineering school 20 years ago.I purchased Matlab, took the intro Matlab courses and then reviewed this book again. My opinion quickly changed. It's very rare I've found a trading book with content in it as good as this. Also the Appendix in learning Matlab is excellent and saved me lots of time.More importantly, I'd encourage anyone interested in learning more about Quant to follow Dr. Chan's blog. Some of the ideas on it alone are worth many times the price of this book._____This book was recommended by a Quantitative Trading website and I have to say I was a bit disappointed. If it was titled "An Introduction To Quantitative Trading" I would be less disappointed. That said, there are still some nuggets of gold in the book.On the positive front, he exposes the curtain on some next level trading tools such as AI products that are geared for the serious trader. This alone is worth the price of the book. The chapter on setting up your trading business is also excellent. He talks about the pros and cons of joining a firm which are excellent.The book is written around MATLAB code. The benefits of MATLAB is that it's extremely powerful and very easy to work with matrixes. The appendix chapter on MATLAB is an excellent primer to the benefits of using MATLAB. I would guess most of the people reading the book can code, so I'm more interested in the concept behind an idea than the code to do it. The book is light on explaining the concept and heavy on giving MATLAB code.Probably half of the code examples involve trying to get data into MATLAB from Yahoo finance. When the same thing can be accomplished in TradeStation or MultiCharts with (a lot) less work. If the strategies in the book were ultra complex, then MATLAB or a standalone C# style program are the way to go. In the case of basic pair trading, it doesn't make any sense. Especially with custom .DLLs and the .NET version of MC.However it seems for a lot of the community QT uses it as vehicle to live their wildest geek fantasies more than to efficiently develop trading concepts.My main reason for purchasing the book was to expand my knowledge of mean reversion trading. Rather than explain the concept in detail, Dr. Chan talks about mean reversion but never gives a specific example of the math behind it and the returns. He gives some MATLAB code of trading the GDX and GLD however he never explains the strategy. I had to try and reverse engineer it from the MATLAB code.I am an engineer and I've taken graduate level math courses in things such as Laplace transforms, statistics, advanced calculus, etc. I'm a math geek. This book was hard to follow and written for academics like Dr. Chan. It seems he was trying to impress his PhD peers more than writing a book for the aspiring algo trader (who isn't a PhD). For instance, he uses the term vector to refer to a variable. After reading the Appendix on MATLAB, this made more sense. However explaining it at the end of the book made it that much more difficult to read.The book was short and usually I appreciate an author who is a master of brevity. However in this case it was a hindrance. The chapter on position sizing, leverage and risk was highly truncated. He mentions the Kelly Criterion and a few examples of it, which are rudimentary at best. The Kelly Criterion can be a financial instrument of mass destruction if it's not used with caution. The Van Tharp position sizing book is ~500 pages of in-depth discussion on the subject. Position sizing is a huge part of the strategy in many types of trading.I had to look up most of the concepts in the book and he does a poor job of explaining what they are. For instance, the difference between correlation and co-integration in pair trading. He gives one example which is horrible at best at in illustrating the concept. I ended up buying another book on pair trading which did a much better job of explaining the subject.I just purchase Dr. Chan's other book and I'm hoping it is heavier on concept and lighter on MATLAB code.

A trusted friend recommended this book to me, and I bought it only after a major price decline on Amazon. Once I opened the book, I couldn't tear myself away from the pages, and finished it in merely two days. Now I wish I'd bought it much earlier.This book is especially beneficial to someone who has some background in both mathematics and computer science. As Steve Halpern said, "Ernie successfully distills a large amount of detailed and difficult subject matter down to a very clear and comprehensive resource for novice and pro alike." In a nutshell, this book blows away the fog around quantitative trading, and make the real quantitative trading process accessible to readers. The writing style is casual yet resourceful, more like discussions between close friends. I'd like to thank Dr. Chan for willing to share so much useful information and I highly recommend this book to everyone who is interested in quantitative trading.

I approached this book with some prior experience in Quantitative Trading and found that it's layout is very helpful, linear and well written. While much of the information about the required minimums and setting up your business is significantly dated with the advent of $0.00 commission trading and the widespread availability of API's from brokerage firms like TD Ameritrade, Interactive Brokers, Robinhood etc, there is significant value in many of the sections from basic "How to Quant Trade" perspective.Pros:The chapters on Backtesting do a fantastic job of identifying the correct types of historical databases for testing. The explanations of Look-Ahead and Data-Snooping bias are helpful and do a great job of explaining how these errors can impact back-testing models (or even worse, the failure of an entire trading strategy if you haven't back-tested). Chapter 6 which covers money and risk management is informative and helpful. While there isn't a significant amount of best practices associated with the explanations, the general adage of using risk tools to prevent significant losses is wise and can be found in greater detail in other trading books. The special topics in Quantitative Trading chapter is loaded with strategies and considerations which are still in use and somewhat profitable in todays marketplace. Most helpful is the information about using the Sharpe Ratio to calculate the performance of your portfolio against the risk free rate and including the volatility of your trades. Building a successful quant trading system relies on a high Sharpe ratio and sticking power for drawdowns according to Mr. Chan; this is sage advice. I also found the explanation around using the Kelly model to determine the optimum amount of portfolio allocation for quantitative trading very helpful, clear and well documented.Cons:This text is significantly dated and arguably presupposes some rather extensive understanding of the trading industry as a whole. Dr. Chan is an intelligent writer and presents his ideas clearly, yet this book needs significant updating in order to remain relevant in today's environment. The book is more geared to professional and institutional Quantitative Trading than the self-starter trying to learn the industry and best practices on her own. The use of MATLAB throughout the book is disappointing as there are significantly better systems (personal opinion) and programming languages for quantitative trading that are also free in todays marketplace (like Python and R). Many of the sections outlining the amount of capital used for trading are also irrelevant in today's "no-minimum" brokerage accounts yet Dr. Chan does outline the need for more capital to be equipped for drawdowns. This text is also more geared to non-fully automated strategies where the developer will be going into her account at least twice daily while the algorithms she has created are running. This also feels dated unless you're working for a prop firm where manual interaction to ensure positions are closed daily are required.Generally speaking, this is a good book and worth the read. The MATLAB examples are not as useful for those familiar with programming in Python, JAVA or R. Giving this 3 stars only because much of the information is dated.