Quant Mashup - Investment Idiocy
Portfolio construction through handcrafting: implementation [Investment Idiocy]
This post is all about handcrafting; a method for doing portfolio construction which human beings can do without computing power, or at least with a spreadsheet. The method aims to achieve the following goals: Humans can trust it: intuitive and transparent method which produces robust weights Can be
- 1 month ago, 14 Dec 2018, 08:12pm -
Portfolio construction through handcrafting: The method [Investment Idiocy]
This post is all about handcrafting; a method for doing portfolio construction which human beings can do without computing power (although realistically you'd probably need a spreadsheet unless you're some kind of weird masochist). The method aims to achieve the following goals: Humans can
- 1 month ago, 7 Dec 2018, 12:42pm -
Portfolio construction through handcrafting: motivating [Investment Idiocy]
I've talked around a type of portfolio construction called "Handcrafting" for some time now, in both of my first two books, and in the odd blog post. I thought it would be useful to explain how the technique works in a more thorough and complete series of blog posts, and also share
- 1 month ago, 5 Dec 2018, 12:42pm -
The relationship between ATR and standard deviation [Investment Idiocy]
Let's begin this post with a gross generalisation: Professional traders tend to measure risk and target risk using standard deviation. Amateur traders tend to use a funky little number called the ATR: 'Average True Range'. Both try and achieve the same aim: summarise the typical
- 1 month ago, 3 Dec 2018, 11:39am -
Is trend following dead? [Investment Idiocy]
I get asked this question at least once a week. As those of you that have met me IRL ('in real life') will know I have limited patience and I'm easily bored. I'm definitely bored of answering this question. This post is the last time I'll answer it. There are broadly two
- 1 month ago, 23 Nov 2018, 09:37pm -
Is maths in portfolio construction bad? [Investment Idiocy]
First an apology. It's been quite a few months since my last blog post. I've been in book writing mode and trying to minimise outside distractions. Though looking at my media page since my last blog post I've done two conferences, a webinar, a book review, a guest lecture, a TV panel
- 2 months ago, 15 Nov 2018, 09:06pm -
Vol Targeting and Trend Following [Investment Idiocy]
I was moved to write this by a post on LinkedIn, which you can find here, and which is worth quoting (and thanks to Helder Palaro for pointing me at this): "Volatility tends to “cluster”. Recent high(low) volatility is followed by high(low) volatility in the near-term (ARCH). VT says lever
- 6 months ago, 9 Jul 2018, 07:11pm -
Kelly versus Classical portfolio theory, and the two kinds of uncertainty premium [Investment Idiocy]
Since I was a young lad there has been an ongoing fight in Financial Academia 'n' Industry between two opposing camps: In the red corner are the Utilitarians. The people of classical finance, of efficient frontiers, of optimising for maximum return at some level of maximum risk. In the
- 7 months ago, 8 Jun 2018, 09:56am -
Trading performance - year four [Investment Idiocy]
Time flies, and it's time for another annual update on the performance of my own investment and trading. Previous updates can be found here, here and here. These updates follow the UK tax year; from 6th April to 5th April, as I have to do my taxes anyway it makes sense to analyse everything at
- 9 months ago, 16 Apr 2018, 09:33am -
CTA allocations, QE, meta-prediction, and conditional return distributions [Investment Idiocy]
As most of you know my last proper job (part time lecturing and occasional consulting gigs do not count) was managing the fixed income portfolio for AHL, a large systematic hedge fund. I had the pleasure of that job from late 2010 until mid 2013. It's fair to say that the main topic of
- 11 months ago, 21 Feb 2018, 04:32pm -
Smart Portfolios: A post about a book, NN Taleb, and two conferences [Investment Idiocy]
September 18th is the official publishing date of my second book, "Smart Portfolios: A practical guide to building and maintaining intelligent investment portfolios (Harriman House, 2017)". This blog post will give you some more information about the book, and more importantly help you
- 1 year ago, 4 Sep 2017, 01:24pm -
My new book: Smart Portfolios [Investment Idiocy]
... is now ready for pre-order. For more information see the website, here: https://www.systematicmoney.org/smart To pre-order you can go here: https://www.harriman-house.com/smart-portfolios
- 1 year ago, 14 Aug 2017, 11:09am -
Some more trading rules [Investment Idiocy]
It is a common misconception that the most important thing to have when you're trading, or investing, systematically is good trading rules. In fact it is much, much, much more important to have a good position management framework (as discussed in my first book) and to trade a diversified set
- 1 year ago, 22 Jun 2017, 10:43pm -
People are worried about the VIX [Investment Idiocy]
"Today the VIX traded below 10 briefly intraday. A pretty rare occurrence. Since 1993, there have been only 18 days where it traded below 10 intraday and only 9 days where it closed below 10." (source: some random dude on my linkedin feed) ... indeed 18 observations is a long.... long...
- 1 year ago, 16 May 2017, 12:57am -
Some reflections on QuantCon 2017 [Investment Idiocy]
As you'll know if you've been following any of my numerous social media accounts I spent the weekend in New York at QuantCon, a conference organised by Quantopian who provide a cloud platform for python systematic trading strategy backtesting. Quantopian had kindly invited me to come and
- 1 year ago, 2 May 2017, 11:42am -
Getting position and accounting data out of IB native python API [Investment Idiocy]
This is the final post. Not the final post of the blog; which may be good news or bad. But the final post in my short series on using the new native python API for interactive brokers. Having got some prices and submitted some orders we want to know whether we made any money or not; and what
- 1 year ago, 24 Mar 2017, 10:28am -
Placing orders in the native python IB API [Investment Idiocy]
This the fourth in a series of posts on using the native python API for interactive brokers. You should read the first, second, and third, before this one. It is an updated version of this older post, which used a third party API (swigibpy) which wraps around the C++ API. I've changed the code,
- 1 year ago, 20 Mar 2017, 03:18pm -
Streaming market data from native python IB API [Investment Idiocy]
This the third in a series of posts on using the native python API for interactive brokers. You should read the first, and the second, before this one. It is an updated version of this older post, which used a third party API (swigibpy) which wraps around the C++ API. I've changed the code, but
- 1 year ago, 10 Mar 2017, 01:51pm -
Historic data from native IB python API [Investment Idiocy]
This is the second in a series of posts on how to use the native python API for interactive brokers. This post is an update of the post I wrote here, which used the 3rd party API swigibpy. Okay so you have managed to run the time telling code in my last post. Now we will do something a bit more
- 1 year ago, 8 Mar 2017, 09:31pm -
Interactive brokers native python API [Investment Idiocy]
Until quite recently interactive brokers didn't offer a python API for their automated trading software. Instead you had to put up with various 3rd party solutions, one of which swigibpy I use myself. Swigibpy wrapped around the C++ implementation. I wrote a series of posts on how to use it,
- 1 year ago, 8 Mar 2017, 01:15pm -
Can you eat geometric returns? [Investment Idiocy]
This post is about a slightly obscure, but very important, issue. Should we use geometric or arithmetic means of returns to evaluate investments? This might seem boring, but answering this will help us with some other serious problems: Does diversification increase the expected value of your
- 1 year ago, 7 Feb 2017, 09:53am -
Playing with Docker - some initial results (pysystemtrade) [Investment Idiocy]
This post is about using Docker - a containerisation tool - to run automated trading strategies. I'll show you a simple example of how to use Docker with my python back testing library pysystemtrade to run a backtest in a container, and get the results out. However this post should hopefully be
- 2 years ago, 18 Jan 2017, 11:27am -
Systematic risk management [Investment Idiocy]
As the casual reader of this blog (or my book) will be aware, I like to delegate my trading to systems, since humans aren't very good at it (well, I'm not). This is quite a popular thing to do; many systematic investment funds are out there competing for your money; from simple passive
- 2 years ago, 5 Sep 2016, 09:48pm -
Capital correction (pysystemtrade) [Investment Idiocy]
This post is about how should you adjust the trading capital you have at risk given the profitability (or not) of your trading account. I'm posting this for three reasons. Firstly it's a pretty important topic. I address, in some detail, how to set your risk target for a given amount of
- 2 years ago, 8 Jun 2016, 09:33am -
A simple breakout trading rule (pysystemtrade) [Investment Idiocy]
Breakout. Not the classic home arcade game, seen here in Atari 2600 version, but what happens when a market price breaks out of a trading range. The Atari 2600 version was built by Wozniak with help from Jobs exactly 40 years ago. Yes that Wozniak and Jobs. Source: wikipedia In this post I'll
- 2 years ago, 20 May 2016, 09:34am -
Optimising weights with costs (pysystemtrade) [Investment Idiocy]
In a previous post I showed you how to use my open source python backtesting package, pysystemtrade, to estimate forecast weights and instrument weights. At the time I hadn't included code to calculate costs. Now that has been remedied I thought I should also write some code to demonstrate the
- 2 years ago, 18 May 2016, 11:46am -
Diversification and small account size [Investment Idiocy]
I get occasional emails asking me to cover subjects in my blog (keep them coming! I will eventually get round to them). A pretty common one runs something like this: "I understand that diversification over instruments is the best way to improve returns- you trade almost 40 futures markets, and
- 2 years ago, 9 Mar 2016, 01:39pm -
Computers vs Humans - considering the median [Investment Idiocy]
Or why you aren't, and will never be, John Paulson The systematic versus discretionary trading argument is alive and well; or if you prefer, computers versus humans*. In this post I pose the question - who is better the average systematic trader, or the average discretionary human? * Though
- 2 years ago, 29 Jan 2016, 10:34am -
Correlations, Weights, Multipliers.... (pysystemtrade) [Investment Idiocy]
This post serves three main purposes: Firstly, I'm going to explain the main features I've just added to my python back-testing package pysystemtrade; namely the ability to estimate parameters that were fixed before: forecast and instrument weights; plus forecast and instrument
- 2 years ago, 29 Jan 2016, 10:32am -
pysystemtrader: Estimated forecast scalars [Investment Idiocy]
I've just added the ability to estimate forecast scalars to pysystemtrade. So rather than a fixed scalar specified in the config you can let the code estimate a time series of what the scalar should be. If you don't understand what the heck a forecast scalar is, then you might want to read
- 3 years ago, 19 Jan 2016, 02:00am -
pysystemtrade [Investment Idiocy]
There are already many python packages where you can back test trading strategies. Some of them also include a framework for automatic execution and complete position management. I can't give an exhaustive list but I'll pick out: - Quantopian's zipline - BT - pythalesians -
- 3 years ago, 18 Dec 2015, 02:43am -
Random data: Random wanderings in portfolio optimisation [Investment Idiocy]
Everyone knows that the usual naive method of portfolio optimisation is, well, a bit rubbish. This isn't because the method is flawed, but it relies on the inputs being 100% accurate, or to put it another way we need to know precisely what the mean, volatility and correlation of future returns
- 3 years ago, 18 Nov 2015, 11:52am -
David Versus Goliath [Investment Idiocy]
Just a quick post today. As most of you know until a couple of years ago I worked for a large systematic hedge fund. Now I manage my own money. I'm doing similar things (systematically trading futures, with a holding period averaging a few weeks, and a variety of trading rules with a trend
- 3 years ago, 16 Nov 2015, 12:36pm -
Random data: Evaluating [Investment Idiocy]
Everyone hates drawdowns (those periods when you're losing money whilst trading). If only there was a way to reduce their severity and length.... Quite a few people seem to think that "trading the equity curve" is the answer. The basic idea is that when you are doing badly, you reduce
- 3 years ago, 10 Nov 2015, 12:58pm -
Using random data [Investment Idiocy]
As you might expect I spend quite a lot of my time using real financial data - asset prices and returns; and returns from live and simulated trading. It may surprise you to know that I also spend time examining randomly created financial data. This post explains why. I also explain how to generate
- 3 years ago, 4 Nov 2015, 01:36pm -
A little demonstration of portfolio optimisation [Investment Idiocy]
I've had a request for the code used to do the optimisations in chapter 4 of my book "Systematic Trading" (the 'one-period' and 'bootstrapping' methods; there isn't much point in including code to the 'handcrafted' method as it's supposed to
- 3 years ago, 6 Oct 2015, 07:47am -
Python code for the two trading rules in "Systematic Trading" [Investment Idiocy]
This is a brief post aimed at those who have already bought a copy of "Systematic Trading" (by the way thanks!) As you've probably noticed I've included excel sheets here explaining the two trading rules I describe in the book - exponentially weighted moving average crossover
- 3 years ago, 30 Sep 2015, 08:05pm -
A story of poor statistical intuition [Investment Idiocy]
In my last post I had a bit of a controversial pop at a brilliant and successful billionaire hedge fund manager; Jim Simons. In continuing my futile quest to raise the level of debate in the quantitative investment community I thought I'd have a go at another clever and very wealthy guy, Cliff
- 3 years ago, 25 Sep 2015, 09:32pm -
"Systematic Trading" is Released Today [Investment Idiocy]
Today is the big day. My book Systematic Trading - A unique new method for designing trading and investing systems is officially released (although some people who ordered the ebook may already be reading it). Here is a picture of my new "baby": Even in this age of technology there is
- 3 years ago, 14 Sep 2015, 07:39am -
Systems building - Checks and balances [Investment Idiocy]
Driverless cars are, apparently, very close to commercial reality. I don't know about you but there is something pretty scary about a computer being completely in control of a complex process, which could have catastrophic consequences if it went wrong. Ah it was nothing. You should have seen
- 3 years ago, 2 Sep 2015, 11:01am -
Systems building - accounting [Investment Idiocy]
If you tell someone you're trading, the first thing they'll usually ask is "Have you made any money?" It isn't usually this easy to tell if a trader has made money or not Most traders I've known are pretty obsessed with that question as well. Knowing the answer to that
- 3 years ago, 6 Aug 2015, 06:56pm -
Systems building - execution [Investment Idiocy]
People often get systematic and automated trading mixed up. The latter is a subset of the first. You can't have a system which is fully automated if it relies on discretionary input, no matter how small. But you can have a system which needs a human to make it run, even though there is no
- 3 years ago, 21 Jul 2015, 10:04am -
"Systematic Trading" - the book - now available to pre-order [Investment Idiocy]
Isn't it pretty? The website, and pre-order page, for my magnum opus are now ready: www.systematictrading.org http://www.harriman-house.com/book/view/4598/trading/robert-carver/systematic-trading/ Like it says on the back "This is not just another book with yet another trading system. This
- 3 years ago, 30 Jun 2015, 11:23am -
Systems building - deciding positions [Investment Idiocy]
This is the third post in a series giving pointers on the nuts and bolts of building systematic trading systems. A common myth is that the most important part of a systematic trading system is the 'algo'. The procedure, or set of rules that essentially says 'given this data, what
- 3 years ago, 15 Jun 2015, 02:02pm -
Systems building - futures rolling [Investment Idiocy]
Trading futures has one fairly substantial complication compared to many other assets. You can't just buy 'the CME Gold future'. There is no such thing. You need to select which delivery date future you are trading. Do you want to trade June 2015, July, August....? Once you've
- 3 years ago, 18 May 2015, 02:33pm -
System building - Data capture [Investment Idiocy]
A while ago I ran a series of posts on how you would write some python code to systematically trade using the interactive brokers C++ API. Whilst I hope this was helpful it was just a starting point. There are at least two major projects to undertake before one could actually trade. The first is the
- 3 years ago, 28 Apr 2015, 08:13pm -
