Attempting to profit from short-term fluctuations in a security's price as opposed to investing in the security for use or income.
22
votes
3answers
5k views
How can we reverse engineer a market-making algorithm (HFT)?
Consider a market participant $A$ who is mechanically following an automated liquidity providing algorithm (HFT) in a number of large cap stocks on a specific exchange.
Assume furthermore that we are ...
22
votes
1answer
1k views
Is my trading strategy search methodology sound?
I'm building an algorithmic trading business. I'd be grateful for informed comments and opinions on my trading strategy search methodology.
Goal
Develop (profitable!) fully automated intra-day ...
20
votes
8answers
5k views
Digital Signal Processing in Trading
There is a concept of trading or observing the market with signal processing originally created by John Ehler. He wrote three books about it.
Cybernetic Analysis for Stocks and Futures
Rocket Science ...
17
votes
7answers
1k views
How to design a custom equity backtester?
I was thinking about writing my own backtester and I realize I have to make some assumptions. So I was hoping I could post what I am planning on doing and hopefully some of you can give me some ideas ...
16
votes
2answers
778 views
Statistical properties of stochastic processes for moving average trading to work
Common wisdom holds it that a moving average approach is more successful than buy-and-hold. There is quantitative evidence for that across different asset classes (see e.g. this book, or this paper ...
15
votes
5answers
2k views
Skew arbitrage: How can you realize the skewness of the underlying?
It's not clear to me how to realize skewness. In other words, how do you implement skew arbitrage? There seems to be no well-known recipe like in volatility arbitrage.
Volatility arbitrage (or ...
14
votes
4answers
1k views
How are risk management practices applied to ML/AI-based automated trading systems
A potential issue with automated trading systems, that are based on Machine Learning (ML) and/or Artificial Intelligence (AI), is the difficulty of assessing the risk of a trade. An ML/AI algorithm ...
12
votes
2answers
1k views
statistical arbitrage option overlay strategies / volatility trading
Here's an interesting trading puzzle that I would love to get the community's input on.
Let's say there exists an alpha signal that does a good job of sorting equities expected excess returns over ...
11
votes
2answers
2k views
How do I find the most diversified portfolio, or least correlated subset, of stocks?
I have a trading system that chooses top 10 stocks in Nasdaq 100 ranked on relative strength and some other factors. However, I'd like to take positions in only 5 of these 10 stocks based on how ...
11
votes
4answers
2k views
Volatility pumping in practice
The fascinating thing about volatility pumping (or optimal growth portfolio, see e.g. here) is that here volatility is not the same as risk, rather it represents opportunity. Additionally it is a ...
10
votes
3answers
2k views
How to combine multiple trading algorithms?
Is it possible to combine different algorithms so as to improve trading performance? In particular, I have read that social media sentiment tracking, digital signal processing and neural networks all ...
10
votes
2answers
1k views
Is there a standard method for quantifying mean-reversion for use in directional trading?
Assuming a directional strategy (no pairs or spread trades) is there a "standard" method for quantifying mean-reversion? Should auto-correlation, variance ratios, hurst exponent, or some other measure ...
10
votes
2answers
350 views
Exploiting breakdowns in correlation of estimated volatility
In the attached image I have a plot of the rolling correlation of 90-day historic volatility (using the Garman Klass estimator based on Sinclair's Volatility Trading) of JPM v. the S&P. As can be ...
9
votes
2answers
627 views
How to simulate slippage
I'm backtesting a trading strategy, using free OHLC data from yahoo or google. I'm simulating friction by lopping a flat percentage (say 0.5%) off my returns for each day that I make a trade. Whats ...
8
votes
4answers
972 views
What kind of specialized hardware is used in trading?
What kind of computer hardware, in additional to the 'conventional' fare, is actually used in trading? And what languages is it typically programmed in? I'm interested in ASICs, FPGAs, that sort of ...
8
votes
3answers
1k views
Order submission strategies of a rational market maker?
Consider a market maker that has decided to try to make a round-trip trade in stock A in order to capture the bid-ask spread.
Assume furthermore that he has no current inventory in the stock A. To ...
8
votes
1answer
342 views
How to select/construct benchmarks for black-box trading strategies?
When faced with a black box trading strategy with extensive historical data available, how would one select/construct a representative benchmark?
As a trivial example, when a strategy historically ...
7
votes
3answers
300 views
Is there data on market participants at a particular moment?
I am looking for data on market participants at a particular moment (or some proxy/approximation). For example, how can I tell whether mostly big players and HFTs are dominating the market in ...
7
votes
2answers
452 views
Applications of Fourier theory in trading
What are fashionable applications of Fourier analysis in trading? I have heard vague ideas of applications in High Frequency Trading but can somebody provide an example, maybe a reference?
Just for ...
7
votes
3answers
574 views
What strategy would benefit most from having the fastest connection to the exchange?
Imagine that you have the fastest connection to the exchange (receive quotes 1 ms earlier than everyone else) for both stocks and derivatives.
How would you benefit from this?
Of course almost any ...
7
votes
1answer
409 views
What are the most common/popular exotics in the interest rate markets these days?
By "exotic" I mean anything that is not a plain vanilla swap, swaption, cap or floor. Also any IR hybrids if appropriate.
Possible examples would be:
CMS and CMS spread options
Multi-callable swaps
...
6
votes
4answers
474 views
What are the options for a mathematician to break into QF without working for a fund?
I have a degree in mathematics, and I've worked as a statistician and done some programming work. I'm very strong in my math/stats/programming background and have browsed some QF books, and I'm very ...
6
votes
4answers
403 views
Are there any brokerages which use URL-based web APIs?
We already have a list of brokerages that provide apis. What about brokerages that provide web apis?
For example, Collective2 has a url-based web api for entering trades. Are there any brokerages ...
6
votes
4answers
858 views
Can the futures market's open interest predict commodity, treasury, and equity returns?
I came across this article and became curious. Can the futures market's open interest really predict market action?
6
votes
1answer
462 views
Are special condition identifiers (e.g. AIG+) standardized?
Suffixes indicating class, preferred, new, etc., are well defined for NASDAQ and NYSE, but I can't find anything documenting the meanings of the trailing punctuation. For example, here's some that I ...
6
votes
2answers
1k views
Which algorithm should I look into to kick off my research in algorithmic trading? [closed]
I have recently undertaken a research into automated algorithmic trading algorithms.
The aim of the research is to focus on studying algorithmic trading and trying to improve a basic implementation ...
6
votes
2answers
323 views
Is there something like opportunistic “superstitious” trading?
This sentence in the following paper got me thinking:
"Some traders [...] trade every pattern whether proven or not, expecting
authentic ones to produce positive results, whilst the profits and ...
6
votes
1answer
132 views
Estimate price movement per unit of volume for daily data
I'm working on backtesting a number of stock trading strategies and need to estimate how much the execution price will likely deviate from the historical close price for that asset using daily data; ...
5
votes
3answers
354 views
Means of inferring trading algorithms from competition trade data
I'm analyzing trades from several participants in a trading competition, and I was wondering - are there known mechanisms for analysis and inference of the logic in a set of trades done by one ...
5
votes
1answer
752 views
What is “high frequency quoting” or “quote spam”?
What is so called "high frequency quoting" or "quote spam" in the context of high frequency trading? And why do some people consider that as a problem for the market?
5
votes
1answer
290 views
With there being such a high demand for electronic trading or just trading in general why are market hours so limited?
I am curious why a lot of market hours are something like 9 to 3 or 9 to 4 pm when there is such demand and so many prop shops and more out there. I know certain markets are continuous trading but a ...
5
votes
1answer
684 views
A generic limit order book: What are the most important queries it should be able to answer?
Assume a class LimitOrderBook which represents a limit order book in a trading system.
To be able to represent the limit order book a data handler reads a feed ...
4
votes
3answers
216 views
How to implement a long-term trade on oil?
I believe that one of the most compelling case of long-term trade is the long position on oil. Fundamentally, it seems quite clear that demands is going to grow in the future as emerging markets start ...
4
votes
3answers
270 views
Given markets usually fall fast and rise slowly, are there trading mechanisms to take advantage of this?
Per a previous question on this topic -- markets generally fall fast and rise slowly: what options strategies or other strategies can one use to take advantage of this common occurrence?
4
votes
2answers
388 views
S&P 500 list of stocks since 1960
I am looking for the S&P 500 index list of stocks for each day since January 1, 1960. Does anyone know where I can find these lists?
4
votes
1answer
265 views
Is there any measure that is a non-trivial combination of VWAP and TWAP?
Is there any measure that is a non-trivial combination of VWAP and TWAP? For example:
\begin{equation}
\textrm{VTWAP} = \frac{\textrm{VWAP}+\textrm{TWAP}}{2}
\end{equation}
I'm thinking about ...
4
votes
2answers
564 views
How to calculate optimal standard deviation bands for trading?
I am trading with standard deviation bands (6 bands) on de-trended data. How can I find the most profitable signals with neural network or GA with standard deviation bands? Should I first find the ...
4
votes
2answers
1k views
When should we use SWIFT versus FIX?
I've read documents that claim that SWIFT and FIX are not competing protocols for financial transactions and messaging. And yet, I have not come across a clear articulation of when to use SWIFT versus ...
4
votes
2answers
4k views
Trade matching versus affirmation
I'm looking for a clearly articulated description of the difference between trade matching (e.g. Omgeo's CTM) and trade affirmation (e.g. Omgeo's Oasys). From what I understand, they both involve ...
3
votes
2answers
893 views
GJR-GARCH Model In R
Any idea how to estimate GJR-GARCH models in R? Is there any particular library like fGarch that supports such models?
3
votes
2answers
312 views
Usage of Bollinger bands
I looked through several sources on Bollinger bands and I do not see clear recipes of their usage. Wikipedia says "The use of Bollinger Bands varies widely among traders. "
QSE discussion seems also ...
3
votes
1answer
1k views
C++ training from scratch to quantitative trading? [closed]
I have been trading for decades, and I have a solid knowledge of technical analysis but also VB as professional programmer.
I would like to start learning C++ from scratch, then specialised in C++ ...
3
votes
1answer
172 views
How to determine ratios for mean-reverting basket
Suppose I have a basket of 3 securities A, B, and C. I believe that the basket is cointegrated and I want to create a mean-reverting trade. I fit the model:
...
2
votes
3answers
683 views
Is MATLAB-generated code good enough for use in live trading?
I know that MATLAB has mechanisms for generating code, but I've never used them. Have you? If you have - is it good enough (=fast enough, I guess) to be used in live trading systems? Anything one ...
2
votes
3answers
572 views
How to distinguish between different types of algorithmic trading
Algorithmic trading involves the use of algorithms to optimally execute trading instructions. Then there are algorithms which initiate trades, based on various quantitative strategies (e.g. pairs ...
2
votes
3answers
199 views
Is it worth preserving orderbook structure when building it from individual orders?
Say I'm building an order book and two bids come in at price $p$ and volumes $v_1$ and $v_2$. Which option is better
To store the order as $\{p, v_1+v_2\}$ or
To store the order as $\{p,v_1\}$ and ...
2
votes
1answer
141 views
What exactly is an ISO order?
I have been looking this up and I feel like I keep running into different definitions. My understanding is that an ISO order is one which will get filled with the displayed quantity in a particular ...
2
votes
1answer
115 views
Analyzing an incomplete set of trades
Say I have access to logs of all trades executed on an ECN with the price maker and taker named.
These traders are only executing some of their flow on this ECN (anywhere from 5%-80% of their ...
2
votes
2answers
347 views
Does Interactive Brokers (IB) have a Web friendly API?
The requirement I am given is to implement a web ppplication which utilizes Interactive Brokers's API to fetch data. I went through the IB API web page and came across two viable methods: TWS and IB ...
2
votes
0answers
160 views
Can a higher P/E ratio be beneficial under certain circumstances? [closed]
I am new to investing. I understand that the P/E ratio along with other data can be used to determine whether a stock may or may not be undervalued.
Are there situations where a HIGH P/E is actually ...
