Sunday, 30 May 2010

The last week of revision starts here

It is my final week for studying Philosophy of Economics & History of Science. I am very well prepared for the latter, not so good for the former. Based on the mock-exam papers I have, I can typically do 6 or 7 questions for H of S, maybe 2 for P of E. I am going to need some luck to get through them both.

Emma's had her last exam at Cambridge and thinks they have been somewhat mixed. One went very well, one not so well and two were average. She is on for a high 2-1, but doesn't think she has done enough to get a 1st.

And I, of course, still have to write a dissertation over the summer. I have almost forgotten what subject I picked. Hopefully I can get started on that again in a couple of weeks, with the aim of producing a decent draft before Linda and I go to Italy for our main holiday.

There is still no word from Oxford on my PhD application but I have confirmed that it is still in their system. There was an article in the paper the other day saying that applications have risen dramatically for PhDs as a result of the difficult jobs market for graduates. I had thought that would be an issue for MScs, but hadn't really expected it to extend to PhDs. So there has been a huge rise in applications and my chances of being accepted are corrspondingly reduced. I generally have a bad feeling about this and am beginning to think of other projects instead

The main one of these remains my biography project. This would work very well when combined with trading. Indeed I am getting more and more excited about the combination of the two activities.
I will re-apply for a PhD if I am not successful this year at Oxford. But if not accepted again, I am thinking about finally doing my long-proposed trip to the Himalayas. In the latest KS catalogue, I was surprised to see that it is possible to go to the area of Nepal where Peter Matthiesson went for the book, The Snow Leopard. This has taken over from Mera Peak as my favourite trip idea. So if the PhD doesn't happen, I will do this instead in October / November 2011
Two views of Shey Gomba - the setting for The Snow Leopard

A somewhat melancholic view of the world at the moment. Currently music reflects this - lots of Nina Simone, and one of my favourite records from the 1980s, the Chameleons' Script of the Bridge which I rediscoved the other day, "Monkeyland" and "Second Skin" being two outstanding tracks

Thursday, 27 May 2010

A "successful" trading day & Starlings

As a systematic, quantitative trader, my definition of what constitutes a "good" day's trading has a slightly expanded meaning compared to most people. Making a profit is not necessarily a sign of a good day. What really counts for me is that I have taken all of the trades that I was supposed to, at the time I was supposed to have taken and at prices that are in line with the fills that the system suggests should have been avaliable. If this occurs each day, then the profit or loss will take care of itself.

So really I have split the definition of "successful day's trading" into two components - the success of the systems themselves and my success in implementing what the systems say to do. I am perfectly happy with the first aspect - I've no doubt that the systems are good, it has been the second issue that I've found hardest.

But today I can say that I was successful in my goal of correctly accepting all trades between the hours of 6:00am and 9:00pm. Unlike the previous few days.

And just as well too. For once again, the last hour proved to have the best trades of the day, with the US equity markets dropping over 100pts in a single 10 minute spell around 8:20 and taking crude down with it (to a lesser degree). I would have been extremely unhappy to have quit early again and missed out on this.

That said, despite the gains at the end of the day, it was a small losing day today - but only around 20pts.

And so to starlings

Some while back I was looking at starling pictures on the internet - an amazing number of great photos of starling flocks in strange complex patterns. I put some of these on an earlier blog entry. It occured to me today that there is something quite abstract about multiple images of these flocks. So in a spare half-hour today I created a Word document consisting of a 4 x 3 set of text boxes into which I could place a starling picture. I am incredibly pleased with the outcome. So much so that I have replaced three of the pictures on the wall by my desk with these new ones (something that hasn't happened for quite a few years)

My next task is to see if they can be printed A3 size. They would look great as a set of three big pictures.
The following pictures are not the finished items but give an idea of what I was doing - they are actually the "contact sheets" produced in Photoshop when I was first looking at how the images might look - I actually spent some time sorting out the precise location of each picture "for maximum artistic effect". But it gives an idea of what the finished pictures are like

Each finished picture is 4 x 3 landscape

I expect to be able to spend many hours gazing at the finished versions on my wall behind the PC screen on which I am writing this.

Tuesday, 25 May 2010

To cheer myself up post trading . . .

I have been watching Austin Powers: The Spy who shagged me. Cue, pictures of Felicity Shagwell . . . . .

Another psychologically-demanding trading day

There is a big overnight fall in the markets I follow, apparently on the back of tensions between North and South Korea. But for today's trading, markets are relatively stable, though whippy - the worst combination for me. A huge number of trading signals are generated, often on consecutive bars. The filter rules stop about half of these but I am still stuck trading in a poor market. I am typically buying near the range highs, and selling near the lows, regardless of the filter rules. Some trades suffer instant reversals - I am down before I even have time to record the fill. Periods of calm are followed by a sudden huge move (almost always against me) then a reversal. I have no other trading tactic than just sit it out. Perhaps I shoulds study the equity loss stop rule again?

So over 75% of today's trade lose money, and the few gains I do make are pretty small. Overall, the worst day since detailed trading rules were formulated and a loss of about 350 pts.

Psychologically this is very tiring. I have a headache again, for the 5th day running I have to take some ibuprofen tablets - so far, very little impact can be detected of the vitamins and cod liver oil that I started taking a few day's ago!

How soon one forgets the good trading days

Next Day's Addendum

The other main question to ask of the "worse day's trading since records began" is: have I followed the systems exactly as I resolved to do this week? And sadly, the answer, once again, is: NO

Firstly, at around 15:40 I incorrectly set up a trade on the signal bar instead of using the signal bar to generate the trade for the next bar. Inevitably, it turned out that this signal was a fine example of the efficiency of the trade filter I am using. The market reversed at the start of the next bar and by the time I realised the mistake and have corrected it, I am down 60pts

Secondly, the stress of the day finally got to me around 7:45pm and I threw in the towel. 15 losses and just 3 wins, the largest of which was just +33pts. So I didn't accept the reversal signal at 20:00 and so missed the two best trades of the day, a +105 and a +65. Tiredness, stress, or whatever, this is the secind day in a row where I have made this mistake - despite my resolution to the contrary

So the day's loss was -345pts taking the week's loss to -475. But the errors made so far this week have been worth have cost about 300pts. So about 65% of the week's losses are due to not following the systems.

On the one hand, this is a comforting result as it shows, yet again, that the systems are robust in difficult conditions - it is just a question of being patient.

But on the other hand, the results are psychologically difficult to take. To incur these extra losses from my own stupidity is quite a lesson.

Maybe I can put it all down to the tiredness and stress induced by trying to revise for my forthcoming exams. So in two weeks time, I should be trading better? But that raises the question of maybe stopping trading till then. I shall ponder on that this weekend and maybe not do anything next week.

Monday, 24 May 2010

Goals for trading this week

Most weekends I have been working on research projects suggested by the week's trading. Some of these are simply collecting the trading data from various strategies that I am following, others relate to slight tweaks to the systems and so on. For instance, I have come to view the trading system signals as just the first part of the trade entry process - necessary but not sufficient conditions for a new trade.

A few weeks back I made what could be a very significant break through. By analysing virtually every trade in terms of their initial MFE and MAE, I spotted that many of the "raw" trading signals gave what I came to see as "false alarms" and that there was a particular feature that could distinguish a portion of these false alarms. More precisely, the new feature avoided about half of the "false alarms" saving about 50pts per trade avoided and did so at a cost that appeared to be considerably lower. Detailed research suggested that the cost was about one-third of the savings made - thus suggesting a very marked improvement in performance.

So the last couple of weeks have had me collecting detailed data on the impact of applying this additional rule and what it means real-time. Overall the results look good - last week's crude oil trading made nearly 700 points, but would have been 300 lower without the new rules.

This week I noticed that the new rules also seemed to suggest a new profit opportunity. As I recorded what I had saved by applying the new rule, I realised that I could have used the rule as a trade entry rule and so capture as additional profit, some of the gain made by applying the rule to the basic systems. But this would require the somewhat nerve-wracking trade of buying in a steeply falling market and selling in a steep rise - not trades that come naturally to me. Still an extra 150 pts appear to be available for last week via this rule - not to be sneezed at, even if the existing systems made 700 pts.

This week's goal is to run the systems perfectly from 6:00 to 9:00pm throughout the week for both US equities and crude oil. I don't care what they produce in profits, but I must do exactly the right trades (including the new rule in its filtering role - not its additional profit role).

That was also the goal last week and the week before, but I am still not perfect - so more practice needed, more thinking about the exact ways I do the necessary calculations in real time, and so on.

Next day Addendum

Did I manage to run the systems perfectly throughout Monday? The answer has to be NO (yet again). The markets generally had quite a quiet day. Small losses first thing, a rally around lunchtime with a peak in my equity around 1:30 at +50. Then small losses with the occasional profit all afternoon and into the evening leaving me at -80 pts around 8:30. Nothing much happening so I decided to wrap up 15 minutes before the US markets close.

Inevitably a bad mistake - the Dow falls 95 points in the last 15 minutes, crude down 35 pts. I was short both at 8:45 and so lost the chance to earn this 130 pts, leaving a down day rather than a small profit.

Events like this are so confidence sapping - and so annoying.

The sell-off at the previous night's close continues through the night - the best trade of the last few days with 150 pts profit in both equities and crude if I had been able to trade all night. I wake up to the results of these falls. Would this produce a sell-off at the official Europe opening, or perhaps a bargain hunting rally. In the end, a modest, choppy fall, producing more whipsaw losses and a down start to the day. Multiple buy and sell signals (most false alarms), trades that reverse and go against me the moment the trade is actioned, constantly buying a highs and selling at lows - such is the life of the trader sometimes. Still a 100pt move can't be far away - maybe the next trade will be it?

Where do ideas of the erotic come from?

A few blog entries ago, I was talking about a picture from the Independent showing a woman standing in front of two famous paintings. For some reason, I found the picture quite erotic - the contrast between the appreciation of art and the pretty girl in the smart business suit. I also pondered on a lasting liking for French Maids. I can't remember anything particular about French Maids prior to about the age of 20. Then I remember the front cover of a magazine that showed a girl with curly black hair in a maid's uniform carrying a small tray and bent over slightly. I was impressed enough to buy the magazine (which didn't have any other related pictures inside I remember). A website that I have come across in the last couple of days suggests that the attraction of maids is the combination of the satin, very-formal outfit (especially with stockings) and the submissiveness of the maid as a servant to a master and linked to issues of them needing to be spanked for being so naughty. It also notes various occurences of French Maids in relatively mainstream media. Marilyn Monroe wears a maid's outifit in one of movies from the 1950s, a character in Desperate Housewives wore one, the female lead in the Bill Murray film, The Man who knoew too little wears one, Carla in Scrubs did, and so on. Apparently they are quite common halloween outfits in the USA and are very popular in Japan. So there you go. So another excuse to include some maid photos Jennifer Aniston again - she really does look good in her outfit. Apparently she also wore one in an episode of 30 Rock

The classic look - with stockings and heels

The Japanese costume look - part French Maid, part superheroine


And Sinead O'Connor, from her days as a French-Maid kissogram - now there's a thought!

Friday, 21 May 2010

A wild 200-pt day

On the face of it, any 200-pt day ought to feel good. Afterall, if I could average 200 pts a week, I would do fantastically well. But sometimes such a day doesn't leave you feeling good - instead it is a case of the "ones that got away"

A quiet-ish start to the day - a couple of tiny wins off the early morning trades. I generally start work at 6:00 by putting on whatever position would be on at that time. Occasionally the pre-market is exactly what continues on into the main trading day. If you do nothing at the start of the trading session you can sit on the sidelines and watch a giant trend run all morning that you are not in. But for the last few weeks, the early trades have been nothing special

Then, around 9:00, two superb trades. Sells in both US equities and crude. By 1:00, then trades have produced over 350 pts of profit and with more than half the trading day left, I am wondeirng whether this could be an exceptional day - always a bad thing to start thinking

Sometimes the trading systems "just" get hit for a reversal. It might be only a matter of a few marginal points that cause the trade. At 1:45 a move was just sufficient to flip me to long US equities going into the open. A 2-pt smaller move would have prevented the flip. An hour later, this trade has lost about 80pts, as has a corresponding long in crude.

If the market had reversed after its big fall and regained the losses, I would have had a red letter day. As it was, by late afternoon I am only up 100-pts and am not feeling at my best. Then we are hit with a 10-minute power cut and my stress explodes - what is happening to my trading positions? Panic, rushing round checking our fuse boxes. It is not our problem and power comes back on. But then it takes another 5 minutes to sort out the PCs and the internet. As I come back online, crude is giving a sell signal, which I take and forget to reverse - so I only exit the long. Another 30-pts gain disappears and I am not happy.

But early evening, both equities and crude rally and I pick up 60 pts in the former and 108 in the latter. So the day ends at around +200, which would otherwise be a good day

My trade exit tonight occurs at 8:00pm. I am really exhausted from the psychological impact of the changing day. If the 2-pt move in US equities hadn't happened, I would have made an extra 125-pts on the short and not lost the 80 on the long. And worse still - just after 8:00, both markets begin to move down again and I would have picked up another 120-pts if I had stayed trading the last hour. Those "extras" that I could, on another day, have picked up, were worth over 300 pts. I was within a whisker of a 500-pt day, what would have been the best ever (excluding the flash crash day)

So somewhat battered and bruised from the day. But on the plus side, I did manage to correctly apply the trade entry methodology throughout the day (unlike Tuesday). Calculations show that this gained me over 100 pts versus the "raw" system

More philosophically, I am pondering on the trading aspects of "the ones that got away" - perhaps I should pursue this trading-fishing analogy further

Wednesday, 19 May 2010

Recent interesting photographs

As a change from talking just about trading, two photos I have rather liked from my web browsing - by someone called Jim Richardson Chicago from the air at night - a demonstration of light pollution. How on earth was this taken? And this, of course, is Skye - where I was last summer and where it was never even remotely like this weather

Back into the fray . . .

Lots of pondering on the lessons of yesterday and, as a result, I have a new deal entry methodology devised and in place this morning. This is given a robust test throughout the morning at markets avoid any sort of trending behaviour and remain locked in quite tight ranges. The new trade-entry procedures take a few moments to calculate when a trade signal is given, but already seem well worth it. There are 8 trades avoided today as a result of using the new procedures and these save something in the order of 200 pts that would have been lost had the "raw" signals been actioned. This "saving" came at a cost of about 40 pts in fill "slippage", a pretty good trade off I think. I still have a sequence of losing trades throughout the morning, but the results could have been a lot worse. Late morning there is something of a rally in both US equities and crude oil. After quite a number of small losses (maybe a total of 125 pts worth), I get two buy trades that make some back, followed by a really nice down move in both markets that put me into profit for the day. I was particularly pleased with how I traded crude through this period as it was market stats day and the 3:30 bar had a range of over $1. Ultimately I made a gain of 42 points on a trade that was, intra-bar, down 90 at one point post data. But the systems didn't say sell and I stuck with them. So a nice ending. The Dow fell over 100 pts in 25 minutes or so around 3:00pm and I was able to get out with a 75 pt win. I so nearly placed a limit order to close out half at what would have been a 125 pt gain but the market rallied away from my close point having got within 4 or 5 points of it. Still this wouldn't have been a system trade had I down it. Once again, I am really tired around 5:00pm after 12 hours of work. Maybe that is part of the reason for last night's errors in setting entry points. If so, maybe I have now recognised the problem and can be extra vigilant going forward. In all this, I am still busy revising for my exams which are now less than 3 weeks away. Maybe this is another reason I was not concentrating properly last night. I have registered for Paul Wilmott's quantitative finance website and was able to download a load of articles today, including quite a few by the legendary Ed Thorp (who I tend to associate with the 1960s and blackjack rather than to recognise him as a hugely successful hedge fund manager - this was made clear though in the book on Quants I was reading recently) These are all quite small and will be good snacking articles between the main blokes of work I am doing - which today was mainly Philosophy of Economics.

Tuesday, 18 May 2010

After a good trading day, inevitably a really bad one

Just when you think trading is relatively straightforward . . . . A good start to trading today. Initial trades in crude oil and the FTSE put me up 75 points in the first hour. But then a series of unavoidable whipsaw trades whittle down the gains. A mistake in the FTSE applying the entry signal rules costs me 25 pts. A trade goes from a 50 pt profit to a 15 pt loss in 10 minutes - a far faster reversal that the systems were set up to cope with. But then around 2:00pm, a decent sell in both the Dow Jones and crude move me from an 80pt loss to a 100 pt profit for the day. Then things go really pear shaped Around 18:00 I miscalculate trade entry points three times in a row and enter trades that I shouldn't have because I have the wrong entry point programmed. These three errors cost a quite staggering 280pts - inevitably it seems that the market swings are so much bigger when you have a trading error in place. The rest of the day is a small negative as some "real" whipsaws wipe out gains from the downward market moves. So I finish down around 350 pts knocking out most of yesterday's great gain. But at least there is the knowledge that much of the loss was due to my errors rather than the trading systems - in theory this should be fixable Clearly I now have to spend some time sorting out a better entry methodology - some initial ideas in late trading, but I really have to sleep on this overnight. Addendum - the next morning All systematic trading systems have an Achilles heal - a precise configuration of market moves that seems almost uncannily impossible for the trading system to cope with i.e. a configuration of prices that cause the system to almost precisely zig when it should zag and vice versa Some weeks back, using some simulated data, I was able to get a rough idea of what this worst case situation is. It occurs when the market oscillates at a certain fairly-precise frequency both in respect of price changes and times between highs and lows. The systems are fairly robust either side of these frequencies. Quicker moves are ignored, longer moves are profitably tradeable. But moves of exactly the wrong size and period are loss-making. And it doesn't matter if these oscillations are superimposed on an up- or down-trend or occur in sideways markets Also psychologically such moves are quite tough. I sell a market short and within five minutes it is rallying strongly. I buy it back and go long some time later and almost at that precise moment, the market reverses and falls all the way back. It is almost as if the market knows precisely what I am doing and then does the opposite. This may also explain the errors in setting the precise entry points. These should have been wider than I actually set - but narrower entries stop the pain of being the wrong way round sooner. Psychologically, it is sometimes difficult to make the right decision in the heat of battle when everything is going wrong at once (and in such an annoying manner) True, it would be much better if the trade set up rules were followed as they give a chance to break the cycle, e.g. , by not going long at a high but remaining short as the market reverses and falls. But more generally, it just has to be accepted that sometimes this will happen. A few weeks back, crude oil traded lower all day, losing over 250 pts while I made 4. And that was precisely for these same reasons So what can be done. Firstly, the effect can be spotted only after it has occured a number of times. This is pretty easy - trades come relatively quickly, and every trade makes a decent sized loss. But this is little help. At some point the cycle will break and a buy will be followed by a good run upwards and vice versa - possibly even good enough to wipe out the previous losses. So other than correctly following the trade-entry methodology, I should continue to trade per the system Another alternative is to use stop losses, but they are notoriously unreliable for my type of trading system. While they might work in the precise conditions of yesterday, overall they are a bad thing. Finally, this is really an argument for blending in other systems that work on different frequencies. For instance, if I apply the same systems to data on a different period - e.g. 10 minute data instead of 5 - then the systems are not as affected as they were yesterday. They might not have minded a day like yesterday as much as the systems I am using did. But I am not yet set up to manage more systems. So just grin and bear it - yesterday was just "one of those days"

Monday, 17 May 2010

A really good day's trading - perhaps?

A rather foolish start to the trading day today. Having not managed to go running over the weekend, I thought I'd just nip out at 6:45 to the paper shop in the nearby village. Everything looked quiet, so was bound to be ok. . . . . Wrong! I miss a buy order on crude which I hurry to trade when I get back at 7:15 and I miss entirely a possible buy on the FT, though I dislike pre-market trading in this market, especially given the poor end to last week. Taking just the crude trade, my run to the paper shop has cost me £40. But from then on, things go rather well, Crude oil rises all morning and I reverse at just before 12:00 for a gain of +165, +180 if I'd hit the right fill. Then crude spends the afternoon dropping, giving me a short profit of +215. The Dow whipsaws me a bit just after its open, but then also settles into a steady downtrend for the afternoon. I suppose it is tempting fate to be writing this at 18:00. But I have a +200 point day and am feeling rather pleased that I have hit every trade more or less exactly. Now if only I'd picked an entry point just one point higher for a late p.m. Dow buy, I'd be another 50 pts better off having avoided a whipsaw. There is, afterall, always more that could be made. As I write this, the Dow and Crude are weakening and I am long. If only they would rise, say, 100 points over the next two or three hours! ADDENDUM @ 9:10pm As luck would have it, both the Dow and crude reversed the weakness I noted in the final paragraph above and rallied strongly, the Dow by 140pts and crude by 50 pts. So a great day in the end. +427.5 points for the day, against a budgeted weekly target of +250. Today's return in crude was +5.6% unleveraged on a day when it dropped 2.5%. Trading for me doesn't get much better than this.

Friday, 14 May 2010

Trading - the "rubbish bag" incident

Despite all the system testing, all the detailed calculations, despite everything you think you've done to prepare yourself - along comes an incident over which you seem to have no control and a material impact occurs At 9:10 this morning a signal to sell crude oil occurs. The previous bar had closed at 7366 with a low of 7362. My trade, carefully written down, was to sell if the price fell to 7362, next bar, closing out an existing long trade and opening a reversing short, half of which would have a 25 pt profit target attached. This is exactly the sort of trade I could automate, but sitting at my desk, there seemed no reason not to just take the trade as it occurred. Then a loud call from downstairs. One of our rubbish bags is spilling all its contents over the road outside. I rush downstairs and decide that probably a car or the recycling lorry has tagged the bag and split it open. Rubbish is everywhere on the road. It takes me 10 minutes to clean up. Back at my desk, I am horrified to see that crude oil has fallen 60 pts and my trade hasn't been done. I close the long position for a loss of 60 points. Inevitably, part of this covering occurs at the low of the 9:20 bar at 7330, from which crude oil rallies. Worse still, the automatic trade with the profit target should have been picked up and exited in the space of a few minutes so I don't have the profit on this trade either. A quick calculation suggests that I am now down about 100 pts on the trade. My decision making process has rather collapsed by this stage. Crude oil rallies to 7362 which is exactly my chosen entry point. The systems should have been short at this level with what would not be a half sized position, the other half having been closed out at the 25 pt profit. So selling at this level would have put me back in line with the system's entry point (though I would not have had the 25 pt cushion of the first half trade). But the stress of losing 50 pts when I should have only lost 20 seemed to paralyze me and I couldn't put the trade on to bring me back in line with where I should have been) Needless to say, crude oil then sold off dropping 15 pts in the bar where the 7362 level was hit, then 5 pts, then 25pts, and so on. By 10:30 it has dropped through 7300 and hits a low at 10:45 of 7273, at which point my missed trade would be 90 pts up. So the trading system records that it made a 30pt profit between 9:10 and 11:00, while I record a 100 pt loss. Again this means more to think about - automation of such reversal orders has now had a major emphasis. And I need to be willing to correct trades back to the systems chosen position, not go flat because I am stressed. Whose knows which trade might make 150 pts?

Thursday, 13 May 2010

What is erotic?

I suspect there really isn't an answer to this question. Indeed if ever I am tempted to think that I have come across most things in this area, a purchase of the monthly magazine Bizarre soon sets me straight!

But I am quite taken by the picture below from today's Independent showing a scene from the Christie's auction house in Manhattan where Michael Crichton's art collection was sold yesterday. The young lady below is standing between Picasso's Femme et Fillettes and Jasper John's Flag (which has always been one of my favourite pictures). It is the combination of appreciation of art and the girl's very nice legs and smart suit that does it for me. I reckon

A constant erotic favourite for me remains French Maid's outfits - I have no idea why though. Apparently the notion of the naughty maid comes from 1930s music halls and bawdy plays, based on the idea that young French girls helping in one's house was a recipe for much comedy. The picture below is, of course, Jennifer Aniston, who makes an excellent maid - though her outfit could be improved perhaps by stockings rather than bare legs. This picture comes from one of the her films - Friends with Money - not perhaps her greatest film moment, from what I remember, but the scene below made up for that

Or there is the classic naughty maid bending over - always a favourite

Latest progress on setting up trading

An area where I have paid relatively little interest in the past has been types of order, i.e. market, stop and limits. Previously, I have mainly used market orders but, again, Aldridge's High Frequency Trading has caused me to re-think this whole issue. There is also another factor that I'm thinking about in this area. Sometimes short-term market moves are just so fast that manual trade input isn't feasible - by contrast, a stop order to open will see the trade carried away with the general market move. Once or twice recently I have fallen victim to this sort of move - so time spent on this issue should be well spent This point particularly applies to very short term trading (which is clearly why it is in the Aldridge book), especially systems with fixed profit targets, trading many times a day. Sometimes it is easy to forget that a system trading 10 times a day, winning 7 and losing 3 with wins and losses equal at 15pts, would make a daily return of net +4 trades worth 15 pts each per day - a total of 60 pts which for the FT100 is over 1% unleveraged per day!! And how many 15 pt swings are there per day in the FT? - answer is usually well above 10 per day. So lots to play for. And a point made about short-term trading which I have come to believe strongly is that it is much easier to predict directionally 30 minutes ahead from particular market set up that it is for longer periods. Predictability tails off sharply with time.

Noise and Music - a new book

Probably due to the monthly influence of Wire Magazine (the music mag, not to be confused with the tech-mag Wired), my musical taste has gradually drifted more and more towards bands that feature a thick crust of noise in what they do. Of course I have long admired Sonic Youth who have been in this genre since the early 1980s. But the main new thing in the last few years has been music from Japan.

In particular, Boris (who remain my favourite band of the last few years), Keiji Haino (especially the Fushitsusha cds), Merzbow, even the Acid Mothers Temple and High Rise, Sunn O))), Earth, etc. I am, perhaps, one of the few people to have listened to the 50-cd "Merzbox" all the way through. The other day I found and downloaded a five-hour Fushitisha concert from Hosei University in 2003. I bet that will be an intense listen. Ideal revision music perhaps?

A book has arrived on exactly this theme - Paul Hegarty's Noise / Music a History - full of complex arguments as befits the author's position as a lecturer in philosophy. So among various descriptions from the history of noise in music, there is also the occasional mention of Heidegger (The Question concerning Technology - which I read a few years back), Deleuze, Derrida, Adorno, Kant, and so on. This book is currently my "last-thing-at-night" reading and is proving a little difficult for this role. I am having to alternate with Derman's My Life as A Quant (also not a very easy read). Perhaps I would be better with The Girl with the Dragon Tattoo which arrived the other day.

Current noise favourites include the version of "Untitled" from the last Boris cd from the live show in Tokyo, April 2009, a recording of Keiji Haino and Lee Renalso in New York in 2002, some old Naked City recordings and Bill Laswell with Haino and others in Tokyo a week or two ago - the wonders of the internet that such music can find an audience so easily


And how odd that Japan should be the source of some much of this extreme music


Keiji Haino - a Fushitsusha show

Wednesday, 12 May 2010

Joanna Newsom at the Festival Hall

The trip to London gives me time to ponder on the recent trading lessons and get some perspective. Tomorrow I must build up a record of all the whipsaw indications from the last few weeks and analyse what could be done about them. But that is for another day - today it is all about Joanna Newsom at the Royal Festival Hall. Support for tonight was Roy Harper, tempted out of retirement for Joanna, who he describes as being "one of the most beautiful women I'm ever seen, performing some of the best music you're likely to hear on the planet". By contrast, Harper's set was somewhat patchy, it being his first show for over 3 years. He remains a truly great guitarist, but his songs and vocal delivery are somewhat of an acquired taste. His choice of material was pretty odd tonight, though the cover of "Another Day" was nice First song by Joanna is "81" performed alone on the stage, after which her eclectic band appear. Ryan Francesconi is there from the last tour, as is the drummer, whose name I can't remember. They are joined by two female violinists and a male trombone player. The sound balance for the show is really excellent and this combination of unusual instruments works very well together. There is a rather odd break for 10 minutes to re-tune her harp, but otherwise it is a fairly free-flowing show. Sadly three or four of my favourites from the new cd are not played, though there is a really nice version of "Easy". Just one song from "Ys" - "Monkey and Bear", whereas I would have most liked "Emily" or "Only Skin". As has been commented elsewhere, her voice has changed somewhat after she developed vocal-cord nodes on the last tour. I probably find the new voice to be preferable to the old, but sometimes I did find myself hoping for one of the strange vocal moments that she was noted for in the past. But overall I enjoyed the show very much. Odd to be in a crowd that seemed to be mostly women - does Joanna Newsom have a special affinity for women?

Tuesday, 11 May 2010

Trading - optimism soons turns to pessimism

Yesterday - Monday - was a superb day for trading crude oil - yet another great result following last week's amazingly good results. The 25 point swing exit was perfect for today and produces 9 trades at +25, with just one loss of -19. In normal trading (rather than the wild markets of the last few days) this is perhaps as good as it gets. I also quite like see limit orders hit! The underlying trading system had a more volatile day - a couple of decent-sized whipsaws, which eliminated accumulated profit to date on at least one occasion during the day, but it finished at +100 or so for the day. So Monday was a great day, especially as there was only a tiny net move in the oil market across the whole day But Tuesday has been an entirely different matter. There was a really good trade signalled at 3:30 in the morning that would have produced a +80 result, but then, as I actually started following the markets, a series of multiple whipsaws in a slowly falling market really hit the results. Not a single trade can generate a favourable excursion of even +10, let alone the constant +25s of yesterday. And I get hit doubly hard by the doubled position I am currently running - most annoying Therefore all of yesterday's gains evaporated during the morning which has raised fears yet again about future success. This is partly a function of being woefully under capitalised so that everytime something bad happens I think it is a sign that I have deceived myself with the plans I currently have. But on the other hand, the FTSE is down 2% today, so Linda's investments have lost more than I have. And in the big picture, it isn't a problem - it is more that I was feeling a bit carried away by yesterday's success And I am also bothered by the constant inability to follow exactly the signals from the systems - which remains intensely annoying. Still too much second guessing going on. When will I finally realise that I am not as good as the systems I created? Luckily I have to stop following the markets as I am off to London to see Joanna Newsom tonight

Monday, 10 May 2010

Some critical reading on trading

The key question I have been working on for the past couple of months is this: how long does one need to monitor a strategy in order to gain confidence that the strategy produces the Sharpe ratio advertised? I had not yet been able to calculate the Sharpe ratio for the simulated data as I felt I was missing a key point about such calculations - something in the back of my mind told me that there was an answer to this overall question, but I just couldn't remember where I had seen it

Then I started reading Irene Aldridge's book High Frequency Trading , which I had bought a few week's back but delayed reading till now, and on p 59 is the precise question above and the method by which the relevant Sharpe Ratio is calculated. As I suspect, the Sharpe ratio from daily data has adjustments in it to annualise it, based on the same sort of change for re-basing volatility from annual, to monthly, to daily

Armed with this new knowledge I am able to calculate the annualised Sharpe ratio from the figures I have. Indeed, I had actually correctly calculated the daily Sharpe Ratio, my issue was solely how to convert this to an annualised number. And my answer - the calculated Sharpe ratio is 12.5, an extraordinary number at first sight, but not uncommon with high-frequency intra-day trading systems
Highly recommended

And the author herself

On the related question of how much testing is necessary, the high Sharpe ratio implies that relatively little data is needed to verify the figures - as little as 20 days if the claimed Sharpe ratio is high enough. So I perhaps have enough data to be confident that I am on the right tracks (at the very least)

This leads to another question and one that I have been thinking about since re-reading The Predictors book, which is the issue of speed of ramping up position. Clearly if you were sure your Sharpe Ratio was 12.5, you could ramp up very quickly. But I am being more cautious. I have a minimum opening position sizing and am hoping to ramp up four times before the end of the year, ending the year at perhaps 3x the position size I started at

I remember back in 2000 meeting a UBS macro hedge fund guy at their offices in Broadgate. He showed me the room where the Prediction Company's "black box" was actually sitting, chugging away on its own - fully automatic. He claimed this had a Sharpe ratio for over three years of trading of 16! Such a system is profitable virtually every hour - a claim mentioned at one point in Patterson's The Quants
What would a system look like that could be profitable every hour? Well the best analogy is perhaps with a casino running banks of fruit machines (hundreds). Even if each machine produces a big jackpot every hour, the entire operation would be profitable every hour - it is the making of thousands of small bets with the edge in your favour that produces this effect. So a trading system that is profitable every hour would have to trade thousands of times a hour with a tiny edge in its favour. Easy

More essential reading - read it a few week's back in New York, thinking of reading it again very soon.

Friday, 7 May 2010

An extraordinary market day . . .

It is the election here in the UK. Most polls point to a hung parliament. Will that see Gordon Brown hang on to power somehow? This must be a possibility. Linda and I voted in our local village hall and had a nice dinner together before staying up till well after midnight, but still the situation looks very unclear

Far more interesting to me were the wild swings that hit the USA markets this evening. In the space of just a few minutes, the Dow Jones falls 500 points plus and was down nearly 10% on the day, before a huge rally brought it back to just a -350 day. It is initially thought that perhaps a "fat fingered" trader hit the wrong button, - maybe selling billions when he meant to sell millions. Someone managed to but Accenture shares for 1c when they traded above $40 pre and post the mini-crash.

Most importantly, my trading systems worked perfectly, producing ridiculous profits, nearly 500 in crude oil, 400 in the Dow Jones. Given that my profit target is 200 pts per week, this is amazingly good. Still, I am very wary of giving this day much credence. I don't want to include an exceptional day in the stats I'm collecting in case it is an exception. But good to know that I was ok through such upheavals

But will the trades ultimately be scrapped when the dust settles? And what happens to spread bets in these circumstances? What of those people who use stop orders to manage risk - they could easily have been hit at 20% below the previous share price only to find that the shares are back where they started the day - now that would be bad. And what about other, unrelated markets. Crude oil falls dramatically as the events unfold - but why should trades in this be scrapped due to problems in the equity markets?

Inevitably, I suspect that quants will get tohe blame, maybe the effect of algorithmic trading through "dark pools"? For me, this was far more exciting than the election!

Wednesday, 5 May 2010

More developments in market trading

More progress on trading - more time spent on this that could have been spent on revising for my exams! I have now just about completed the selection of systems for each market. A small number of questions remain outstanding, e.g. precise position sizing, what type of orders to use, whether to use stops or not

Today was an example of virtually perfect trading day - an exemplary day. The market moves 200 points, I make 330. The Dow Jones makes a net move of down 20, I make 110 pts. All this is very promising. If it stays so good till, let's say, the end of 2011, then things will be very rosy

But I am left wishing I'd developed all this at RA. This is the way we should have gone - long term trend following seems so naive now (or at least unsophisticated). We did spend some time on the question of very short term trading, but I could never give it the attention I have done over the past few months - too many distractions

My current market-related reading is Satyajit Das's Traders, Guns and Money I read his book on swap financing many years ago. This book is a collection of stories from his time in derivatives and certainly bears a very close resemblance to what I remember of that same period (basically mid-1980s to the present). It has got me reminiscencing of my early days in corporate treasury in the late 1980s. All the marketing girls who used to take me for lunch in fancy restaurants in Covent Garden- especially the blonde and brunette from Chase (was one called Kim?) and the lovely Julia Westcott from UBS (the quinessential 80s sloan ranger)

All through the current process, I am trying to avoid market news colouring my views - even the wednesday stocks report in energies. But I am tempted by either Bloomberg or CNBC in the evening. In the states, I rather enjoyed watching Jim Cramer rant each evening

The key question was always - are you a Dierdre Bolton Bloomberger or a Maria Bartiroma CNBC-er. I was always the former - but I haven't actually seen her on Bloomberg lately. Maybe she isn't enployed there any more?
The lovely Dierdre from Bloomberg

The equally lovely, but probably rather scarrier, Maria from CNBC

Monday, 3 May 2010

Doctor Who

The newest series of Doctor Who has started on Saturday nights and much to our surprise, we are actually quite enjoying them. Of course it is via Emma that we started watching them again a few years back, when she, like all her friends picked up on the David Tennant version. I saw perhaps half the episodes with him in - but I was not a great fan of either Billie Piper or Catherine Tate as his "assistant". The episode "Waters of Mars" was pretty scary I seem to remember.

But Emma was not at all interested in viewing some old Doctor Whos from Linda and my generation. I personally don't remember the first two Doctors and only have the occasional recollection of Jon Pertwee (though I do remember the Brigadeer from that period, and possibly episodes with the cyber men, and a vintage car - can that possibly be right?). It used to be on in the early evening on a Saturday just after Dad and I would be getting back from which ever football match we had been to.

For me, the first Doctor I remember well is actually Tom Baker with sidekick Sarah-Jane.

Clearly a great portion of the appeal of Doctor Who for a teenage boy relates to his sidekicks and Louise Jameson as Leela was definitely in the top category (not sure Sarah-Jane was - I was just a bit too young to see her that way when she was on!)

I seem to remember that Leela was forever threatening people with a knife!
By the time I got to University, Doctor Who was one of the absolute essential viewings of the week - very much a student's show. By now, Peter Davison was the Doctor and he had several sidekicks at once - an extraordinary idea! And Nyssa and Tegan were suitably extraordinary in my view. I would have been delighted to be flying through time with either of them - but both? On the other hand, he also had the ludicrous Adsel in tow as well. I would have dropped him off somewhere very quickly.
Hard to say who I preferred most. Nyssa was an alien and I remember she did have some rather odd characteristics (and some extraordinary outfits), while clearly the idea of an Australian air stewardess was about as erotic as anything could be for an 18 year old. I do remember one quite scary episode where Tegan was trapped in some sort of strange labyrinth - not sure of the exact details though
Nyssa in her first series outfit

And one of her odd outfits from her second series

For me, this will always be the "classic" Doctor Who team

Later, Tegan began to wear 1980s outfts - thus often looking like Sheena Easton! I wonder if "Sheena's barmy army" - an organisation associated with the John Peel show for many years - is still going?
The classic Tegan pose!

And so to the new series with Amy Pond. Perhaps this is best summed up by a cartoon in one of the papers showing two daleks, one of whose antenna are dropping downwards. The other, with normal straight antenna asks, "So you haven't seen the Doctor's new assistant yet?" Some commentators suggested that an assistant who was a kissogram girl (in a police uniform) was going a bit far - I wholeheartedly approve, it must be said

Will this become Amy Pond's classic pose?
The current week's two parter with the weeping angels was very good we thought - roll on next week and vampires in Venice. But despite all this, we have to admit that our current favourite t.v. is "Iron Chef UK" - a truly extraordinary idea!

Saturday, 1 May 2010

Some ideas for our home gym

Slowly we are moving forward on the garage re-build project. The new architect has discussed our latest plans with the officer at the local council that I met with back in March and, other than one tiny point which seemed very unimportant to me, we now have "agreement in principle". Tentative building date might be July to August if we decide to go ahead. The cost is much more that we had budgeted for, so it is important to be very excited about going ahead and to really make the most of it when we have it.

Coincidently, The Independent ran an article on home gyms earlier this week and one idea they suggested was an indoor climbing wall. I am suddenly extremely interested in this idea and have been researching indoor rock climbing holds. Apparently, for about £300, I could acquire 75 climbing holds and associated bolts from which I could create quite a thing. And as we plan to put in a shower room, this will make for a whole host of interesting possible climbing opportunities around a complex shape. True the maximum height of the room is only about 11ft, but two doorways and the shower room give plenty of potential.

Other ideas could include a spin-bike. Surprisingly, Linda also seems to think that these could be good ideas. Standing close to the two back bedrooms at our house, it is possible to really get a good visualization of how it will be. I am very excited about the project. Fingers crossed that nothing unexpected happens as it reaches the planning committee.