Tuesday, 31 August 2010

The dissertation is finished! - now back to trading work

Finally, on Monday, with two days to go, I have a dissertation that complies with the regulations. It is under 10,000 words, including footnotes, is in double spaced format, and looks ok when printed.

For the past few days I have been whittling down a 15,000 draft to comply. This has taken the best part of three days at 9 hours work a day. The dissertation seems ok to me, though it hasn't really had adequate thought out into to it. Some bits are quite disjointed and the overall conclusion could be tighter. But the idea of showing the contrast between Kuhn's Copernican Revolution and his Structure of Scientific Revolutions and then bringing the same critical ideas to bear on Shapin's Scientific Revolution is not a bad idea as such - I just didn't make the best job of actually writing it due, of course, to having left it till the last minute.

So now I can get back to thinking about the start of trading, schedules for next week. Many issues to get right there was well. I am also quite looking forward to cleaning up the study which is an incredible mess at the moment

The Boat that Rocked

Linda and I watch The Boat that Rocked last night, a film about pirate radio in the Sixties. I actually really enjoyed it, especially the music chosen for the soundtrack which I have a copy of somewhere. One forgets just how much effort the then-Labour Government put into clamping down on the pirate radio stations - I think it was Tony Benn who was actually in charge. I felt the movie might have noted it was a Labour Government, but instead seemed to mainly feature Tory stereotypes.

Everything was groovy I expect

I bet I could dance like this - not going to try though

Sunday, 29 August 2010

Yet another Naomi Wolf fantasy

I am a huge fan of Naomi Wolf. Her book, The Treehouse, is one of my all time favourites and a book I have read three times - indeed I am due another read soon I feel. So I am instantly attracted to the headline on the front cover of today's Sunday Times that she has been investigating tantric sex. I first came across tantrism when I was about 15 and read Lisa Alther's Kinflicks, which contained a long section about it, and it has remained an interest since, though not for any useful practical purpose!

So Naomi has been to see a "yoni massage" expert in North London. It appears she didn't go ahead with the full treatment (though she has a friend who is going to try it and report back to her!). Some time ago I read Valerie Brook's book, Tantric Awakening, with its tale of wild tantric sex. For some reason this suggest to me the thought of Naomi Wolf being massaged to peak after peak of sexual ecstasy. This is rather an appealing thought -but then I find most things are when they are about her

The lovely Naomi

Friday, 27 August 2010

Wild market swings - an ideal testing day

Jerome and I have been thinking lots about stop losses. There is a great temptation to not bother with these as the systems generally trade quite happily without them. But then again - is it not wise to protect against some amazing occurance?

So perhaps we need a really wide stop for each market well beyond any likely move and perhaps hit only very occasionally. But what about things like trailing stops or tight stops based on indicators. After talking about this with Jerome this morning, we are provided with a fine set of test cases this afternoon. Economic data in the USA is not good at 1:30 and the markets slide. But then the Fed chairman comes out with some market-cheering comments and there is a huge rally. The losing positions that we could have been stopped-out of bounce back into profit, so the stops would have cost us money. Trailing stops might have worked, but I prefer things like profit target exits - e.g. where the open profit reaches, say, 100 pts. As we begin to trade above minimum size, perhaps a selection of these will be used?

Alternatively, we should remember that such moves are not a core part of our strategy and a small loss on such days is no big deal. Then we just revert back to normal trading at some future point soon after. This whole subject will be my main research task after I have handed in my dissertation next Wednesday.

Wild swings - the perfect test day for stop loss procedures

A dissertation day - but also a trading development

Linda and Emma have gone to Bath for the day and I have a day to concentrate on my dissertation. This is slowly taking shape but I can't help feeling that there are probably many course participants who had draft dissertations done around Easter time. Sadly I am not one of them and have only about one third of the document finished so far. My target is to have a version by the end of Monday, edit it Tuesday, hand it in Wednesday!

Today's work has mainly been on postmodernist accounts of history generally and history of science specifically, together with the section on Kuhn's The Copernican Revolution in contrast to Structure of Scientific Revolutions. Progress is slow it must be said.

A chat with Jerome this afternoon about trading matters and news that his father is very enthusiastic about the trading ideas and has doubled up Jerome's initial capital. So we will start with £20k of marginable capital on Monday September 6th. Jerome is now very fired up, as indeed am I. My trading work today has been on stop loss strategies for counter-trend systems, with some interesting conclusions so far.

An article in the paper today discusses the costs of owning various second hand cars. The article claims that a four year old Porsche 911 costs virtually nothing to run for a year. This is based on its virtually zero depreciation. This caused me to consider whether one of my own favourite cars might be sufficient cheap to own. A quick look on the internet reveals a car dealer with several Ferrari F355 Berlinettas for sale, all around the £35k.

I have decided that if the trading comes out as intended, I will buy one of these for my 48th birthday next year!

A thing of great beauty I reckon - yours for £37,995 with only 42,000 miles on the clock

Wednesday, 25 August 2010

A statistical puzzle

Yet again I am returning to a statistical puzzle in the centre of the trading plans. The issue seems clear. The "theoretical" gain per day from the combined trading strategies is about 175 pts. So if £1 = 1pt, how much capital should be set aside to trade this combination of systems?

The trading margin requirement is straightforward; it is £700 for the full position at this trading size. And one can take this number as being something that the broker will have thought long and hard about. Margin is to protect the broker, so if they are happy with £700 this is because they think that is a suitable measure of risk.

So far the worst day-to-day drawdown has been -448 pts, so this suggests that the very minimum required is £700 plus £448 as this would enable you to keep trading after the worst drawdown, about £1150. An additional rule-of-thumb might be to double or treble this figure giving say £2500 - £3000.

But now the problem. If the systems are as profitable as indicated then they will build capital quickly and higher positions can then be put on. One goal of risk management is to enable the account to grow as quickly as possible. Assuming a new position of £1 per point was put on every time the systems have generated £3000, then the position size and the profits from trading grow exceptionally rapidly - too rapidly. Ludicrously high profits result. Can this really be the case?

So bumb down the daily profit forecast to, say, half the calculated number and then assume, say, £5000 per unit. Then what happens? Answer - enormous wealth, but it takes slightly longer to produce.

Of course part of the answer to these issues relates to the fact that as our position size grows, so we will eventually have some market impact - but I can't really see that being a problem in anything other than the very long term, by which time I won't be trading anyway.

So really the question becomes - how close to the theoretical return can we get and are we putting enough capital into the model to protect against something really odd happening? Roll on September 6th, the start of large scale trading and the beginning of an answer to this question!

Monday, 23 August 2010

A day spent on the dissertation - finally

I have mainly been working on the trading plans for the last couple of weeks, but time is beginning to run out on producing my dissertation. I do think about this on occasions and have got it roughly sketched in my mind, but I do really need to get cracking on it.

So finally, I managed most of the day on it today, cutting and pasting all my dissertation notes from various "idea dumps" I have produced over the past year. The upshot of this is that I have a document in rough section headings though not in order within sections. This totals 13,800 words versus the 10,000 word limit, so I am cutting down rather than scambling round for extra words. But I do have another 2 or 3 thousand words of new stuff to add. Then the proper writing can begin

But that said, the fact remains that the dissertation is not my highest priority. Indeed, with the failure to get on the PhD programme at Oxford, I suspect that my academic career is coming to an end. So there is a slight heaviness overhanging this last piece of work

However I do have another project that I intend to start on once the trading is up and running ok, and that will involve more academic work, so that is still good to have in the back of my mind.

So I will be working on the dissertation for most of Wednesday, Thursday, Friday, Sunday, Monday and Tuesday in the next week or so. Then off to London on September 1st to deliver the finished document, spend the afternoon on some sort of post-dissertation treat and then back home to run some real time simulations with Jerome and do some work on clearing the garage.

A good trading result today making three times last week's profit in the one day. Beautiful results from the counter-trend systems

Saturday, 21 August 2010

Japanese erotic art, bondage and Maria Ozawa

The Times has a long article today about two new books on Japanese erotic art; Gian Carlo Calza's Poem of the Pillow and Other Stories and Rosina Buckland's Shunga: Erotic Art in Japan. This iis a pretty good article and both books are now on my Amazon wish list.

Over the years I have developed a keen interest in things Japanese and have read dozens and dozens of books about the country, as well as listening to loads of Japanese underground music. In the study where I am writing this now, I would say that the "books on Japan" section of my library is perhaps the 7th or 8th largest section. There have been dozens of really good TV shows about Japan, many of which I have been collecting recently from various download sites. One highlight that I recording on video years ago was a film by Stephen Pern about walking the length of Japan which I have watched more than a dozen times over the years. The books by Basho and Geishas by Lindsay Downer and the Japanese travel writing by people like Oliver Stadler and Alan Booth remain among my all-time favourites. So much of the content of the Times article was material that I was quite familiar with - nontheless, it has set me thinking again about issues like "cultural differences"

When I finally visited Japan in 1997 it was on a fast business trip. I have often regretted not adding a few day's holiday to the end of this trip. I was only there for a few days, but the impact has stayed with me over the years. Three events stand out in particular. First, I stumbled across an Irish pub on the 7th floor of a building in the Shujuku area of town. There I spent a very pleasant evening talking to a Japanese girl about her life, etc. At one point, she, and several other Japanese girls and salarymen got up on a stage and did the dance from Riverdance - one of the oddest sights I have ever seen.

Second, there was the amazing meal we went out for one night - 12 courses, including live baby octopus steamed in a bag and the highly dangerous puffer fish. We were served by a geisha girl (or someone dressed as one). Later, back in England, I was told that had I made some comments about how beautiful the "geisha" was, my hosts (a major Japanese bank) might well have "bought" her for me for the night - on and off, I have often wondered what that would have been like!

Typical Shungu - would this be what a night with a Geisha would be like?

This pose often features in Buddhist tantrism where it is called "yab yum" - also mentioned in Jack Kerouac's Dharma Bums of course

When I had a couple of walks round some of the neon areas of Tokyo, I was struck a couple of times by girls in the street advertising various clubs, but not to foreigners - gaijin - such as myself. One that I did go in for a hour or so was among the weirdest places I have been. Basically it was a club where the floorshow consisted of pretty girls being tied up in extremely ornate ways. This is called Shibari and it something of a Japanese art form. The girl were dressed in various outfits ranging from classical kimonos to office girls, nurses and schoolgirls, the latter being something of an obsession in Japan. Most of the ties involved complex suspensions. It was all pretty odd. Last year the BBC screened a documentary series about Japan where one of the episodes covered the bondage scene there, and some of the girls were interviewed.

Some Western "arty" shibari photographs

A couple of years ago I came across a short film about a Western women at a Japanese shibari house. She was tied in a variety of interesting positions. Maybe as it was a western woman and a Japanese man, I thought she was an incredibly erotic film. I did have it saved somewhere but am not sure where now!

Modern Japanese pornography has been a regular feature of magazines like Bizarre. I buy about 3 issues of this a year - just to remind myself how wierd the world really is. One issue had an article about a porn actress called Maria Ozawa. A few months ago there was a newspaper article saying she had been refused entry to a country where she was making a regular movie because of her racy other films. I suspect that if called upon to say, I would nominate Maria Ozawa as the most beautiful woman in the world! Apparently she is of mixed descent - Japanese and French-Canadian. Maybe that accounts for her extraordinary look?

The totally stunning Maria Ozawa

Friday, 20 August 2010

Progress in Jonathan-Jerome trading

Over the week the detailed process of tightening up the trading process has occured and Jerome is perhaps 95% there already. He has done a major sort out of his laptop and now has it hooked up to two widescreen TVs in his flat. Apparently the clean up has resulted in a massive improvement in the laptop's performance so he is very pleased with this.

As I begin to do my final work on my LSE dissertation, Jerome and I will be attempting to ensure that we get exactly the same results from the trading systems. I have programmed the systems onto Jerome's laptop and it is now just a matter of interpretation. One outcome of this was that I produced a one-page schedule in which the systems are specified exactly. This will now form the basis of what we do going forward. We will have two weeks of running this on and off and then September 2nd and 3rd will be real-time trading tests, with the week commencing September 6th when we still plan to go live.

That said, this week hasn't been a great trading week, though we have still managed a small profit. Three losing days in five, which is quite a lot worse that usual, but not impossible.

I have two pending research projects. Firstly, I am looking closely at trade execution and the issue of whether bad fills could have a material impact on us. So far the result is that this shouldn't be a problem. Even if every trade went through at a price that was 1pt worse than expected we would still make 50% of the theoretical profit.

Secondly, I have been looking at some slower intra-day and two or three day systems which we might blend in at some point in the future. These have lower Sharpe Ratios that the high-frequency trading but also have a higher average trade profit, which makes them less sensitive to bad fills. These might be worth looking at closely, but I also want to avoid over complicating the trading from the start.

So everything looks very promising at the moment

Thursday, 19 August 2010

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.

Sunday, 8 August 2010

First few days back

So after a drive of over 1500 miles in 4 days, it is time to get back into some sort of work routine. But there is no doubt that a drive of this magnitude is pretty tiring and the first day back was something of a sluggish day.

First up, the wine has been unloaded from the car - somewhere in the region of 125 bottles to be added to the stock of about the same amount that we have left over from the last two years wine drives. Initially everything is piled up in the kitchen, provoking much comment from Linda's customers as they walk through. But in time I am able to sort out the existing wine in the small lounge and start to box up and label the new stuff. I am surprised at just how much Rose we bought this time.

Then to trading related work. Three weeks of system trades to process as, yet-another, blind test. And another strong pass. In fact the first week of our holiday would have been one of the best trading weeks "since records began". This is a good sign as it shows yet again that the systems can trade well on real data - not just the historical data on which they were tought. The three weeks as a whole we in line with the normal statistical parameters of system performance - so that is all to nthe good.

Perhaps more importantly, the newest systems developed in the weeks just prior to the holiday have had three weeks blind testing and the results are really good. These are the formalised versions of the counter-trend systems that I have been thinking about for much of the summer i.e. they no longer have any judgment calls built in. Frankly the results are exceptionally good and this is definitely the way I will move things forward. Next week will be an actual trading week including these newest systems and I am very excited about the possibilities.

Finally, a little bit of work on my dissertation due Sept 1st. Mainly just a refreshment of the ideas I had set out last year. This seems, on the face of it, to provide a decent enough point from which to create the dissertation. But I have to admit that this is not the thing I am most interested in working on at the moment. I am hoping to focus on this over the weekends when I am not trading, with maybe a splurge on the August back holiday weekend to finish it. But trading work now takes precedence day-to-day.

Thursday, 5 August 2010

Travelling through France - Tuesday & Wednesday


I am awake first in the villa at just before 7:30. No early rising kids it seems. I spend an hour or so reading Kepler's Witch as the household gradually wakes up and some sort of order begins to take shape based around breakfast. Jerome admits to his mother that the shutter to the balcony has been broken (by Vanessa last night) and this starts them all off on another animated discussion. Vanessa is wearing a tiny pair of shorts and a strappy top this morning. Jerome thinks she should wear more but I am quite happy to see her in this outfit.

We have breakfast and I have various pastries and items of fruit given to me for my journey. I am on my way by just after 10:00 after quite a remarkable 24 hours!

Overnight, I have discovered that I was biten dozens of times by mosquitoes yesterday. My left arm is particularly bad with 15 bites from my elbow to my fingers. These have swollen up somewhat am I am forced to use most of our remaining cream this morning - not good

I rang Linda from a service station to update her on what has happened with Jerome and our trading planes and to discuss the remaining wine buying. No news from Emma for the last few days.

My drive is mainly spent pondering on the new trading plans and what we'll need to sort out over the next few weeks. I am tentatively planning to have us both ready to trade by the week commencing September 6th (after I will have finished my dissertation - hopefully - and when Emma will be on her next trip to Africa)

A gradual increase in tiredness as I make my way round past Carcassonne and up towards Toulouse. My target is Cahors which I roll into about 7:30. The really good Supermarket for wine is still open and though rather dead on my feet, I finish our trip's wine buying with 24 Cahors reds and a dozen other local wines. Then to McDonalds for a Big Mac. As luck would happen, this is located close to the French equivalent of a Travel lodge and I can't resist a room for E45.

I was probably asleep by 8:30


Overslept and didn't wake up until 7:45. Still I am out the door by just after 8:00 and soon on the motorway to Limoges. A stop at a service station for food reveals Linda's favourite rose wine on sale, so two more bottles are bought - that definitely is the end of wine buying.

The weather gets worse as I head north. Past Tours it becomes quite dark and then starts to pour down. This happened last time I drove to Cherbourg and is not a good advert for this region of France.

The last photo from this year's road trip - an Aire somewhere near Tours - Wednesday afternoon

I arrive at Cherbourg around 5:00 in plenty of time for the departure at 7:45. Time to have a rest, read a bit, have a really good stretch. I actually have a sleep on the boat, stretched out between two rows of seats in a quiet area. Then the final hour or so to drive from Portsmouth to home. No chance that I will unpack much tonight

Travelling through France - Jerome in Nice

Up and away by 7:15 from the Hotel Turino in Chiavari - not sure I would be in a hurry to go back. At the moment, the Italian Riviera holds little attraction. Initially I set off up the coastal road having forgotten how slow these windy, twisty roads are - it is very scenic though. At the much larger Rapallo I am able to pick up the autotrade again and am soon making better time. Sadly I then take a wrong turn at Genoa and end up stuck on an elevated motorway that takes me down to the docks. There is a truly huge ocean-going cruise ship in dock and a rather nice galleon, but I am distressed to lose nearly 30 minutes on this detour as I struggle to get back out again.

As I entered France, a message from Jerome asking when I will be arriving - my phone obviously doesn't like working in Italy. But I find the road where his mother's villa is surprisingly easily. Chaos reigns in the villa. There is the mother, Jerome and his two kids, his younger sister Vanessa (who looks really gorgeous in a small bikini), her husband and their three kids, plus Celine, an old friend of Vanessa and Jerome's, and her two kids. Seven kids between the ages of just over 2 and about 8.

Luckily they decide to take most of the kids to the beach and so Jerome and I can chill out on the balcony and have a good chat. And so to a surprising development. Jerome really wants to be involved in my trading project and is prepared to stake £10k into it himself. Moreover, he thinks he has three or four people that he can persuade to do between £5k and £10k on an 80-20 profit split. This proposal offers all sorts of interesting possibilities, not least the sharing of the long hours actually trading and I am very excited about it. We have a look at some of my systems and set out some of the core ideas - not everything at this stage though. So when Jerome is back in the UK next week, we are going to pick up on this immediately. In the meantime, he has ordered a copy of Patterson's The Quants.

There is more confusion related to lunch. The barbeque is not working, the kids are back later than expected, chaos reigns again. During the general debate, it is decided that I should stay the night after all and can sleep on the sofa in the lounge. Cue drinks for me. Lunch slowly develops and is eventually served on the balcony at around 5:00pm - crab salad and lamb chops. By now Jerome and I are settled into a second bottle of wine and everything seems fine. I remained very impressed by Vanessa in her very sexy bikini.

Soon after "lunch" a major argument develops between Vanessa and her mother. Jerome says that this is quite normal. We continue to discuss trading ideas and other stuff - especially music. Gradually the kids begin to get tired and are put to bed. Then a rather surprising plan in which Jerome, myself, Vanessa and Celine are going to go out into Nice for dinner. The girls get changed - Vanessa choosing a tiny green and white dress which she refers to as her "Russian whore's outfit". I am very impressed again. Celine rattles off several drinks before we leave and is soon quite drunk. So at around 10:30 we set off for Nice centre in the car - Vanessa driving. A quick wander round the centre finds us in a restaurant by Nice night market. The centre of town is jam packed with people. Apparently there are several Russian oligarchs in town and we keep an eye open for them without success. Celine is very drunk by now. Apparently she and Jerome have had a thing for one another for many years and they become increasingly close as the night progresses leaving me to chat to Vanessa. Odd to be eating pasta with clams at midnight!

We are home by 1:00 with a new crisis when we get back in as Celine's son is really upset about something. My new plan is to try to leave around 10:00 tomorrow for what will be a very long driving day.

Vanessa and Celine in Nice

Italy Holiday VIII - Saturday & Sunday


Our last full day and, thankfully, the weather has improved and we are able to spend a day reading by the pool - pretty much the perfect end to the holiday we both think. I finished reading Phantom Prey which was not very good, but I couldn't face anything much harder today - the odd Philosopher's Magazine article.

No news from Emma for several day's now - hope she is ok!

Some time spent on pondering my dissertation which I really need to get started on properly when we get back. Also my latest thoughts on trading and what I might say to Jerome when I see him on Monday. I know he is keen to be involved in trading again, but I am not really sure what role he might have. Also more thoughts on fast, counter-trend systems and their integration with the other systems.

We pick Il Molo for our last meal and very good it was too. Linda has something of the end of holiday blues but that might be because we really think this town will be one we return to regularly in the future - perhaps October this year or May next.


A reasonably uneventful journey down to Rome airport though Linda was fretting that we were going to be late and I had some concerns about one of the rear tyres which looks very soft. But everything went ok, though Linda did decide to purchase a speedy boarding ticket from Easyjet for E12 so she could jump the queue.

I was on my way again around 10:00 for the drive to Chiavari on the Italian Riviera. I am able to pump up the car's tyre and have a decent enough journey arriving around 4:00. The hotel was easy to find and I bought some food at a local supermarket before having a quiet evening in. No point going out it seemed to me - the holiday was over now and it is just a case of getting home - with the exception of the Jerome visit tomorrow.

The Hotel Torino at Chiavani on the Italian Riviera - slept like a log after a long drive