Algorithmic Trading Group Forum
http://www.algotradinggroup.com/cgi-bin/yabb2/YaBB.pl
Trading Strategies >> Research >> A must to read BOOK(s) on Algorithmic Trading...
http://www.algotradinggroup.com/cgi-bin/yabb2/YaBB.pl?num=1216118314

Message started by Co0olCat on 07/15/08 at 11:38:34

Title: A must to read BOOK(s) on Algorithmic Trading...
Post by Co0olCat on 07/15/08 at 11:38:34

Did you read a book on Algorithmic Trading which you think belongs to "a must to read" category?

Share your opinion here

A poll to be started as soon as we collect several titles...

Title: Re: A must to read BOOKs on Algorithmic Trading...
Post by Co0olCat on 07/15/08 at 11:43:37

Ernie Chan (Author), November 2008, Wiley Trading

Quantitative Trading: How to Build Your Own Algorithmic Trading Business
http://eu.wiley.com/WileyCDA/WileyTitle/productCd-0470284889,descCd-description.html

Description

An innovative guide to understanding and implementing highly effective algorithmic trading techniques

The business of algorithmic trading was an activity once reserved for only traders at hedge funds or the proprietary trading operations of financial institutions. Not so anymore says author Ernie Chan, a proprietary trader and blogger who runs the quantitative trading blog site, epchan.blogspot.com. In Quantitative Trading, Chan shows investors how to use Excel and MATLAB(r) to build their own algorithmic trading tools using a budget even a home day trader can afford. He then reveals how to conduct quantitative research and analysis, and discusses what it takes to turn quantitative trading strategies into profits using stocks, ETFs, and other financial instruments. Chan also provides downloadable spreadsheets and MATLAB programs that tie into material covered throughout this book.

About the author: Ernest P. Chan, PhD (New York, NY), is a quantitative trader and consultant who advises clients on how to implement automated, statistical trading strategies.

Title: Re: A must to read BOOKs on Algorithmic Trading...
Post by Co0olCat on 07/15/08 at 11:58:30

Gençay, R. et al (Authors), May 2001, Academic Press

An Introduction to High-Frequency Finance (Hardcover)
http://www.amazon.com/Introduction-High-Frequency-Finance-Ramazan-Gen%C3%A7ay/dp/0122796713/ref=pd_sbs_b_5

Description

An Introduction to High-Frequency Finance is the first source of unified information about high-frequency data. It provides a framework for the analysis, modeling, and inference of high-frequency financial time series. With particular emphasis on foreign exchange markets, as well as currency, interest rate, and bond futures markets, this unified view of high-frequency time series methods investigates the price formation process and concludes by reviewing techniques for constructing systematic trading models for financial assets.

Title: Re: A must to read BOOK(s) on Algorithmic Trading...
Post by Yury R on 07/15/08 at 16:05:52

But Chan's book has not even been released. One can only guess what is in there. Why are you so sure it is a "must read"?

Title: Re: A must to read BOOK(s) on Algorithmic Trading...
Post by Co0olCat on 07/15/08 at 16:14:08

It is a valid point. The book is not available yet. But that makes it interesting...
Besides, I only suggested a candidate for "a must read" category. Later the community will decide who is the winner (I mean which book) 8)

Title: Re: A must to read BOOK(s) on Algorithmic Trading...
Post by Yury R on 07/15/08 at 16:30:48

Ok, then.
I will venture this book:
David R Aronson, "Evidence-Based Technical Analysis: Applying the Scientific Method and Statistical Inference to Trading Signals"
http://www.amazon.co.uk/Evidence-Based-Technical-Analysis-Scientific-Statistical/dp/0470008741

Product Description
Evidence Based Technical Analysis examines how you can apply the scientific method, and recently developed statistical tests, to determine the true effectiveness of technical trading signals. Throughout the book, expert David Aronson provides you with comprehensive coverage of this new methodology, which is specifically designed for evaluating the performance of rules/signals that are discovered by data mining.


My own opinion is that it is packed with trivialities and that it makes rather long introduction into some very basic statistics, but, in addition, it does make a strong point about data-mining and data-snooping biases, discusses EMH, provides good condensed description of Reality Check test and leads the way to AI in trading.
To many people still experimenting with simple trading strategies on platforms like Metatrader, Metastock etc... this book can be an eye-opener though.

Title: Re: A must to read BOOK(s) on Algorithmic Trading...
Post by Diego on 07/22/08 at 14:41:59

I'm actually reading Evidence Based Technical Analysis by David Aronson.

This book covers a lot about the scientific method and psychology of traders and people in general. It's a good book to guide you when you're developing strategies and algorithms. It helps  to keep in mind how much you can be wrong when you think you are sure.

I didn't reach yet the part of the book where trading strategies testing are discussed, but as soon as I end the book, I will write a little more about it.

Title: Re: A must to read BOOK(s) on Algorithmic Trading...
Post by Yury R on 07/22/08 at 15:55:19

It is good to show what is wrong, but hardy shows anything what's right. It goes as far as to test simple one rule based strategies and measure data-mining bias on them just to show that none of them work. Yes, I know that I suggested this book and yet it seems like I am criticising it. Ce la vie

Title: Re: A must to read BOOK(s) on Algorithmic Trading...
Post by statstrader on 01/22/09 at 22:52:26

Hello All,

New here and I've read all the books above and many more, so hopefully I'll be able to add some useful discourse.  Regarding, Evidenced based TA, one problem I have is that by bootstrapping each daily data bit, you are losing any inherent properties in serial correlation.  He acknowledges this a bit on his site, but doesn't go much farther.  Serial correlation is the foundation of most modeling strategies, such as econometrics and time series, and removing it takes away from the information content IMO.  Personally, I prefer to sample larger sequences of data when bootstrapping (even then, you are removing some dependencies).

Also, I didn't think the 1st book had much to do with algorithmic trading.  I think it would be interesting to have an objective definition of algorithmic trading, considering the site name :)

While I don't have a precise one, the book that best truly describes what algorithmic trading is, has the title, "electronic and algorithmic trading technology, the complete guide," by kendall kim.
Similar to the descriptions the book covers, I consider algorithmic trading to be more of a method to break up liquidity and find ways to efficiently and stealthily process orders without making an impact on the market.  Unfortunately, many of those methods, such as third party exchanges are not available to small traders.

Otherwise, regarding trading systems and methodology, I might stick more to quantitative trading.  

Great start on the forum and hopefully it attracts the best, brightest, and most humble (if that's possible).


Title: Re: A must to read BOOK(s) on Algorithmic Trading...
Post by Yury R on 01/22/09 at 23:03:40

I don't quite follow you about bootstrapping. Of course if serial correlation is to be exploited by a trading strategy then removing it by permuting or resampling make a difference that you need to measure. Therefore removing serial correlation has to be a goal rather than a side-effect. Or are you talking about different scenario?

Title: Re: A must to read BOOK(s) on Algorithmic Trading...
Post by statstrader on 01/22/09 at 23:26:45

Hi Yury,

I'm not sure that your goal should be removing serial correlation.  In the context of econometric time series modeling that is often the goal, to remove any serial dependencies in the residuals, so that your residuals are purely gaussian noise and any dependencies in the data set are explained by the model.

What I was referring to is using bootstrapping of daily data as Aroonson does, and using it as a proxy for the universe of possible alternate outcomes (or estimate of the population) that any trading system could have encountered.  Not sure how best to explain it, but I think the method itself has an inherent bias.

For example suppose you wanted to test a moving average system, and had all the dow daily data.  Next, you want to compare to alternate rule-set based on the same underlying data.  My hypothesis is that by sampling sequences of data (bootstrapping is fine) of some length greater than one, then your sampling distribution would be closer to the true dow population (since it contains serial information), than would be a bootstrapped 1 bit/sample distribution.  Do you agree or disagree with that assertion?  If you agree, then hopefully you see how that may add a bias to the compared distribution.  It's not so much that we want to compare the distribution of the index data with a gaussian/chance distribution, but rather, we want to compare a rule set that operates on a given distribution and compare it to an alternate chance based ruleset on the same distribution
(which is certainly not gaussian, IID).

By the same tolken, if I am developing some system and I wish to run some monte carlo type of simulation of rules on the underlying data, I will make sure to sample rules applied on random sequences of the underlying data, but never change the order of the underlying data itself.  There are typically sufficient amounts of data sequences to sample from so that you would not need to generate alternate bootstrapped versions of the underlying data I

Title: Re: A must to read BOOK(s) on Algorithmic Trading...
Post by Yury R on 01/27/09 at 18:56:12

I understand that when you compare your "intelligent" rule set with a "random" rule set then yes, better not permute. In which case, I would even leave the historical quotes intact and generate many-many random rules sets.

I am not sure that boostrapping (even is block-boostrapping) can produce reliable results that reflect the fat tails. Fat tails are probably be better be modeleld as a random walk with the desired properties (jumps, infinite variance etc.). Or is infinite variance caused by serial correlation? That leaves us with non-Gaussian distribution that has no fat tails, which is not a big deal. I.e. bootstrapping sequences rather than single bits you will get different results, but not much different. Or am I wrong about it?

Title: Re: A must to read BOOK(s) on Algorithmic Trading...
Post by statstrader on 01/27/09 at 22:51:17

I would argue that most fat tails are caused by exogenous shocks or "jumps" in your model descriptions.
However, serial correlation would also likely have some impact on different time frames (ex: day vs. week variance ratios) as shocks tend to autocorrelate (GARCH) in serial fashion.

However, take away the fat tails, and the problem still exists.

I included a small hypothetical example here.  System A has captured an underlying order in system B (the index it is applying rules on). The sign order in B is always - - + + XXXX, where the Xs are don't cares or don't trade because the signs can change in those variables.  According to my backtests, system A is enormously profitable, since it never loses and always captures the relevant serial information that is embedded in B.

However, according to a T-test (w/assumed unequal variances), the system I devised is no better than chance.  Therefore it is a failing system and does not reject the null that this system is no better than chance.  This is the basic premise of the entire book as I understand it.



See any problems here? P.S. thanks
for keeping the threads alive. Wish more lurkers would opine.




Title: Re: A must to read BOOK(s) on Algorithmic Trading...
Post by Z on 01/28/09 at 05:52:30

I don't think a t-Test is an appropriate tool in this particular hypothetical example.

Title: Re: A must to read BOOK(s) on Algorithmic Trading...
Post by statstrader on 01/28/09 at 07:38:46

Fair enough.  But please take the paired sample set, and explain how the test results deviate significantly from the tests proposed in the book we are discussing.

If the premise is using bootstrap sampling or monte carlo permutations as outlined in the book, then could you show (in an alternate table)  how any of the author (or his teacher's papers) are more appropriate to identify that system A is very significant?  Keep in mind I devised a rule set and generated a comparison sample representative of a market sequence of returns which should be sufficient for a t-test.

Otherwise, if you agree that none of the tests described are sufficient, then I think you are pretty much corroborating my original assertion,
No?  

P.S. Obviously, a larger sample set of my hypothetical system would be detected by a runs test, correlogram, or some other possible non-parametric tests; but let's focus on the book's approach.

P.S.S. It's a fantastic book to read btw, just that I have a few scenarios that don't seem to fit his approach.


Title: Re: A must to read BOOK(s) on Algorithmic Trading...
Post by Yury R on 01/28/09 at 08:31:01


statstrader wrote on 01/27/09 at 22:51:17:
System A has captured an underlying order in system B (the index it is applying rules on).


What does it mean?

Title: Re: A must to read BOOK(s) on Algorithmic Trading...
Post by Algo Designer on 01/28/09 at 11:26:53

startrader, I am afraid that in your example pears are compared with apples. Why did you "punish" System A by assigning zero returns to non-existent trades? The P-value from your t-test is artificially distorted. Your variances are off as well as you padded your distribution and thus changed its statistical properties. If you reduce your sample space of A to align with B (less XXX set of zero returns), you will get your perfect P-value (provided sufficient numbers of observations). Your variances could then be assumed to be equal as well.

If the variance of your "signal" and its sample size set cannot, for one reason or another, be assumed to be equal to those of B, depending on your set-up, you might consider using Welch's t-test. Irrespective of the type of t-test you are employing (I am stating the obvious here), you are making a fundamental assumption that your population is actually normally distributed. The Central Limit Theorem is a powerful thing, but with a small subset of observations your model metrics can get seriously distorted.

Title: Re: A must to read BOOKs on Algorithmic Trading...
Post by Algo Designer on 01/28/09 at 11:43:54


Co0olCat wrote on 07/15/08 at 11:58:30:
Gençay, R. et al (Authors), May 2001, Academic Press

An Introduction to High-Frequency Finance (Hardcover)
http://www.amazon.com/Introduction-High-Frequency-Finance-Ramazan-Gen%C3%A7ay/dp/0122796713/ref=pd_sbs_b_5


A friend of mine highly recommended this book today. I thought I would mention it again.  :)

Title: Re: A must to read BOOK(s) on Algorithmic Trading...
Post by statstrader on 01/28/09 at 16:31:48

This is great because everyone so far has pointed out inherent flaws in the technique and in essence agreed with my argument; that it is flawed.  I hope everyone has read, Evidence Based TA, by Aroonson, because that is the context we are discussing.

Now, regarding some of your arguments on the simple T-test and potential flaws, there is no problem with creating a system in real life with padded don't cares, since in reality that is what we do.  We are not always in or out of the day's action.  In fact, it is exactly the way that the book approaches monte carlo permutation, to assign a -1, 0, or +1 randomly, to the underlying data and use this in a basic hypothesis type test of the system (A here) vs. a chance based system, to determine if the system is significant at 5% or less.  According to the author, all of the systems he tested failed in this criteria.  I have shown one example whereby it does not apply.
How many others are there?

You can remove the padded zeros pairs as well, and in this case it will still not be significant, since the means are both around zero.  I did kind of cheat a bit on variance (+11% day), but that was to prove another point about what the market actually throws us.

We could take it a step further and generate lots of data via bootstrapping or monte carlo, then generate a sampling distribution to test the means, but I'm doubting it will affect the results much.  It is clear from my premise that hypothetical system A must be significant given hypothetical index B, one simple example in a universe of many.  

Hopefully, we can stay on topic, and rather than point out the pit falls inherent in the example, point out specifically how the book we are discussing addresses or is not pertinent for testing these issues.  Maybe this needs a new spin-off thread on its own as I know this was a must read book thread. :)

BTW, system A is not punished.  It is actually rewarded by skipping random signs.  But I get your point.

Title: Re: A must to read BOOK(s) on Algorithmic Trading...
Post by gauravr on 04/08/09 at 05:41:37

Hey..
Just joined the group..

Looks like there arevery few books on Algorithmic Trading.
However I have mostly been able to adapt the "generic" fund management plicies and startegies to our work.

Money Management part is definitely a very important part which i found out once we got into action. We had not given it much importance though had taken it into consideration. Ryan Jones is a good one on that.

Regarding other startegies part, Kissell's papers are great. One bookt hat stands apart are the ACME trader book. It basically started me intot his field.


Title: Re: A must to read BOOK(s) on Algorithmic Trading...
Post by Bondi on 01/12/10 at 13:52:36

Check out Jack Schwager's interviews with Ed Seykota and Larry Hite in the book "Market Wizards". They're old school programming guys who made history.

Title: Re: A must to read BOOK(s) on Algorithmic Trading...
Post by willc on 02/14/10 at 02:30:44

Electronic and Algorithmic Trading Technology, The Complete Guide by Kendall Kim doesn't seem to have good readings. In order to know if its a good book, I guess I should check it out at the book store.

To be honest, I don't think there are many good in depth books for trading out there. Majority of them are pretty basics or doesn't really describe complex systems that professionals may be using nowadays. Rather most of them teach you the the basics which is not enough to work on a strategy, but I could be wrong.

If anyone would like to argue against my standing, please send me a PM. I'd like to hear more from you people. I admit though that I fairly new to trading but I have looked at a few books trying to learn it. I hope to make it my profession when I graduate from college therefore I am very willing to anyone who wants to constructively criticize my point of view and can provide a viable argument and some resources to back it up.

I look forward to hearing from you guys!

Title: Re: A must to read BOOK(s) on Algorithmic Trading...
Post by b on 03/03/10 at 16:14:48

I'm afraid I put my post in the (general forum). I've spent some time writing 'Algorithmic Trading and DMA' which is now available from amazon.com.

My background is more software development than trading, so the book works from the ground up (from the fundamental market and order types through to execution strategies, cost analysis etc .

The book tries to collate all the relevant research into one place, and marry this with the some of the more practical aspects of real markets.
As far as I can see there is nothing else out there at the moment which covers this in as much detail. Hopefully people will find it useful. An in-depth preview is available from my website www.algo-dma.com

Title: Re: A must to read BOOK(s) on Algorithmic Trading...
Post by BlackMage on 03/03/10 at 21:36:59


b wrote on 03/03/10 at 16:14:48:
I've spent some time writing 'Algorithmic Trading and DMA' which is now available from


Looks good. 2 copies on their way to the office.

Sorry about your mom.

Title: Re: A must to read BOOK(s) on Algorithmic Trading...
Post by Algo Designer on 03/05/10 at 00:26:35


b wrote on 03/03/10 at 16:14:48:
I'm afraid I put my post in the (general forum). I've spent some time writing 'Algorithmic Trading and DMA' which is now available from [url=http://www.amazon.com
...


I have just purchased my copy as well. Your Mum's story is very sad. Thank you very much for supporting the noble cause.

Title: Re: A must to read BOOK(s) on Algorithmic Trading...
Post by Algo Designer on 03/16/10 at 10:09:28

I have received the book. It is very well put together. Many thanks!

Title: Re: A must to read BOOK(s) on Algorithmic Trading...
Post by b on 03/19/10 at 10:18:32

Thanks, I'm glad you like it. I hope you find it useful.
I didn't post sooner since just after you bought the book amazon decreased the price to $39 (sorry - i have no control of this)

Please feel free to spread the word, I think word of mouth is the best chance I have for sales.

Title: Re: A must to read BOOK(s) on Algorithmic Trading...
Post by Algo Designer on 03/19/10 at 11:34:54

I am roughly 20% through the book. I appreciate the amount of effort you put into it and I can see that what you presented is backed by real-life experience. I have certainly spread the word as well.

Title: Re: A must to read BOOK(s) on Algorithmic Trading...
Post by b on 03/19/10 at 15:09:38

cheers!

Title: Re: A must to read BOOK(s) on Algorithmic Trading...
Post by BlackMage on 05/14/10 at 12:21:14


Algo Designer wrote on 03/19/10 at 11:34:54:
I am roughly 20% through the book. I appreciate the amount of effort you put into it and I can see that what you presented is backed by real-life experience. I have certainly spread the word as well.


I second that. The best book on algo trading written to date.

Title: Re: A must to read BOOK(s) on Algorithmic Trading...
Post by Vadim Anderson on 05/25/10 at 12:22:45

Hi all! I really need to read this book!

Title: Re: A must to read BOOK(s) on Algorithmic Trading...
Post by sumit on 11/07/13 at 10:54:53

what about dr bandy's book

" quantitative trading systems "

best regards



Algorithmic Trading Group Forum » Powered by YaBB 2.2.2!
YaBB © 2000-2008. All Rights Reserved.