Tuesday, 17 August 2010

Day discussing trading with Jerome

Jerome comes up from Bristol for a visit today to discuss our proposed trading partnership. He has bought himself a red land rover that looks exactly like mine. In the boot is his new dog, a German Shepherd puppy called Freya.

Jerome and dog (Freya) at a recent music festival

My main task today is to take Jerome through some of the more abstract trading strategies linked around the idea of "detrended fluctuation analysis". I outline some of the rather abstract principles that have been guiding my research and go back a week or two to set out the trades on some market data. Than we revert to today's markets and have a look at the signals that would have been generated today. I can see Jerome is impressed by the apparent trading results.

Over the next couple of weeks, while I try to finish my MSc dissertation, Jerome will seek to master the trading strategy I've outlined to him and then we hope to begin to trade together in the week commencing September 6th. By then Jerome will have grubbed together a stake and we will start what we hope will be a highly lucrative trading period. I am hugely excited by this plan.

At lunchtime we take Freya to the pub in the village for steak sandwiches and more chatting. Linda comes along too and so can appreciate a little the oddities of life in "Jerome-world".

The afternoon is mainly spent on some of the statistical analysis I have produced over the past few months as well as some ideas we have had about raising capital from some of Jerome's friends. We also have a good look at Jerome's trading infrastructure - especially his very old laptop. In the next few days, we will try and get to the position where every trade that I identify is also identified by Jerome. For my part, I will be spending the next few days looking at the question of trading fills. Like all high-frequency traders, we have a low average trade result - in our case, about 5 points per trade post spread of about 2 pts per trade. This is a pretty common average trade number for this type of trading. The key issue is than whether trades can be executed well enough to achieve this average. But even if we only make half the average - and it is hard to see how we could be that bad - the trading results will be great.

Jerome leaves around 6:00 armed with half a dozen books to read.

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