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Session 6: Overview of Trading Strategies

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AgendaEducation

Session 1: Industry Introduction and Derivatives OverviewSession 2: Overview of Market Microstructure Session 3: Prerequisites for Algorithmic Trading System (ATS) Development and Selecting a PlatformSession 4: Model Development and Stylized FactsSession 5: Review of the Scientific Method and the ATS Development ProcessSession 6: Overview of Trading Strategies

Research

Session 1: Workshop {Next Thursday TBA}Session 2 Workshop {Next Thursday TBA}

Competition - 2 weeks (10 days)

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Agenda

Anyone see this?!

http://www.nanex.net/FlashCrash/OngoingResearch.html

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Algorithmic Trading Strategy Development

Based on the Scientific Method.Generally, 6 stages:Formulation and SpecificationBacktestingOptimizationWalk-Forward AnalysisTrading the Strategy LiveRefinement and Evolution

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Algorithmic Trading Strategy Development

All strategies have three major components:

1)Entry and Exit (Entry Rule, Exit Rule)

2)Risk Management (Risk X for Y)3)Position Sizing (Scale In, Scale Out)

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Taxonomy of Traders

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Trading Strategies

Block TradingNews TradingStatistical ArbitrageTime Series Strategies

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Block Trading

IcebergAn iceberg order is a large single order that has been divided into smaller parts, usually by the use of an automated program, for the purpose of hiding the actual order quantity.

In 2008,Goldman Sachs launched its Iceberg algorithm, which posts small orders across venues, in order to "optimize price and size" of large orders in an electronic trading environment. Iceberg is a function of liquidity.

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Block Trading

SniffersThese are used to sniff out algorithmic trading by others and the algorithms being used. The technique aims to find other software at work in the market in the hope that it will pick up trading opportunities -- either working with or against the trading flow created by the rivals.

"Sniffers sometimes throw a little bit of an order out waiting to see if someone comes and gets it," said Sussman. "You're sort of using it as bait, and if someone hooks on to it, then you try to get more and more of the order."

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News Trading

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News Trading

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New Trading

News Service

http://www.dowjones.com/info/algorithmic-trading-strategies.asp

NinjaTrader

http://www.ninjatrader.com/Develop-Automated-Trading-Strategies.php

Event-Driven Trading

https://www.google.com/#hl=en&safe=off&sclient=psy-ab&q=event-driven%20trading&oq=event-driven%20trad&aq=0&aqi=g2g-v2&aql=&gs_l=serp.11.0.0l2j0i15l2.3454l4005l0l5587l4l4l0l0l0l0l120l360l3j1l4l0.frgbld.&pbx=1&bav=on.2,or.r_gc.r_pw.r_cp.r_qf.,cf.osb&fp=49e91e21499bfe9d&biw=1280&bih=642&pf=p&pdl=300

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Statistical Arbitrage

-Pure Arbitrage

$5 Shirt Chicago, $10 Shirt Tokyo

Riskless profit.

Convergence to equilibrium – “Law of One Price”

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Statistical Arbitrage

-Reference Other Powerpoint

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Time Series Strategies

-Trend-Cycle-Seasonality-Randomness (Random Walk)