Quantitative Trading Strategies -Lars Kestner.pdf

In the first half of Quantitative Trading Strategies we’ll be taking a close look at current techniques used in quantitative and technical trading. This half will intro- duce basic concepts as well as some of the more advanced techniques that system- atic traders use in day-to-day operations. In the second half of the book, using this foundation, we’ll go on to study more complex and cutting edge trading methods. We’ll begin with a discussion on the origins of quantitative trading and its evolution to modern day application. To trade effectively, it’s necessary to under- stand how markets react on a daily basis, and to be able to isolate tendencies such as average price, volatility, and relationships to other markets. To this end, we will also study the statistics and basic properties of market behavior. From there, we’ll move on to the building blocks of systems—entries, exits, and filters—and present specific examples of each, to better prepare the reader for the more advanced concepts to be discussed later. Then we’ll cover trading strategy performance, paying particular attention to certain problems associated with popu- lar performance measures such as percent return, profit factor, and profit to draw- down. Specifically, we will illustrate how the same profit-to-drawdown statistic may be good for one system and bad for another. Following our look at performance evaluation, we will explore the topic of diversification and explain why trading a portfolio of markets enhances the overall performance of technical trading strategies. In most circumstances, trading a port- folio of markets produces better reward-to-risk characteristics than trading any sin- gle market on its own. We examine the benefits of trading a diversified portfolio of markets, strategies, and parameters in our trading accounts.