Monday, June 15, 2009

A good book for quantitative traders

Larry Connors and Cesar Alvarez (the guys behind recently published Short Term Trading Strategies That Work, a nice collection of simple technical trading strategies that you can easily backtest and verify.

As I have argued in my own book, simple strategies are often the ones that work best. As with any published strategies, you may find that their backtest performance may not be as high as advertised if you test them on a different time period or a different security, or with different transaction cost assumptions; but the main value of these strategies is that they serve as an inspiration to trigger your own imagination and motivate you to refine them further.

(For e.g., though the book mainly covers long-only strategies, you can easily imagine the accompanying short strategies.)

To be quite honest, this is one of the few books on trading strategies that I actually manage to finish reading from cover to cover.


N N said...

The book is a collection of over optimized strategies. Throw in enough technical rules into a NN or GA and your bound to find a bunch of profitable strategies. Granted it could form the basics for your own ideas (hello? Mean Reversion anyone?). Additionally, TM/Larry Connors work is full of contradictions. Proceed with caution.

Comintel said...

N N, do you think that there are any trading systems that do work?

Seb said...

Hi Ernest. I just read your book and find it very interesting. I am currently interested to learn more about volatility trading. Could you advise me a book or some documents about it? What is your experience about it?

Ernie Chan said...

Hi Seb,
Thanks for your comment. I have little experience with algorithmic options trading, so can't really help you there. Maybe other readers here can make some suggestions?

Stab-Art said...

Re Vol Trading, see Euan Sinclair's excellent book:

Euan is currently working on a book aimed at replacing Natenberg. How he gets the time to write whilst working as a full-time quant options trader in Chicago I do not know!

Comintel said...

Thank you very much for suggesting this book!

I have just bought and read it.

I am going to do extensive testing on the methods it suggests before trading them.

It shows actual statistical results which will be useful to verify my testing.

wei-hau said...

Hi Ernie,

Would you please comment about the difference between:
(1) revert-to-mean short-term swing trade as described in Larry Connors' book: Long while the market is oversold and trend is up; short while the market is overbought and trend is down.
(2) Intermediate-term trend following system: Long while the trend is up; Short while is down.

What is the performance difference between these two trading systems?


Ernie Chan said...

Hi John,
It is difficult to compare 2 systems described in such general terms. There are of course bad mean-reverting strategies, just as there are good trending strategies. In general, it is easier to find good mean-reverting strategies than good momentum strategies though.

A.S. said...

I have backtested the 5SMA-2RSI system recommended on the tradingmarkets website (b/t using Technifilter) and it does seem to work reasonably well, if you don't mind lots of miniscule- profit trades which might get eaten up by commissions and require massive record-keeping for tax purposes. It works even better if you scale into the position (I haven't figured out how to do this yet in TFP).

Soom said...

You can have a free copy of this book at