Ari Siegel Principal Turning Wheel capital arisiegel@yahoo.com Quantitative Trading Ari Siegel Principal Turning Wheel capital arisiegel@yahoo.com

What is Quantitative Analysis? “A business or financial analysis technique that seeks to understand behavior by using complex mathematical and statistical modeling, measurement and research. By assigning a numerical value to variables, quantitative analysts try to replicate reality mathematically.” – www.investopedia.com Observe behavior Counting Statistics Price movement vs. technical vs. fundamentals Market moves may not repeat, but they often rhyme

Where quants work Buy side Sell side Hedge Funds Banks Other prop trading desks (Trade, Insurance co’s, etc.) Self Sell side Sales & Trading Derivatives Hedging

Quant Roles Trader Programmer Analyst P/L vs. non-P/L Strategy generation vs. analysis and programming

What is a trader? A trader buys or sells securities in a market. Execution Discretionary Proprietary Market Maker Floor Trade Speculator

Trader vs. Securities Analyst TRADER ANALYST Direction YES Size NO Entry Price & Strategy ? Hold time YES (ROUGH) Risk Management NO Exit Price & Strategy YES Act on Analysis NO P/L Responsibility ? High Compensation ? Long Hours YES Ever-morphing puzzle YES?

How to find a Quantitative trade Idea (observation, original thought) Data collection Price/technical/fundamentals database Charts Internet Other resources Data scrubbing Testing – pencil/paper, Excel, statistical software Trade it in small size for some time Scientific method

Statistics Conditions Forward expectation Average move (Mu) Standard Deviation (s) # of observations (n) T-score = Mu / (s/SQRT(n)) Regressions, neural networks, AI

Quant Trade Process Part 1 Find a Trade Conditions Short term Long term Seasonal Intermarket Test Compare to other patterns, current data

Quant Trade Process Part 2 Create a plan Direction Size Entry (Price, Time) Exit (Price, Time) What ifs

Quant Trade Process Part 3 Trade your plan Entry issues Unusual moves What ifs New data – change the plan? Exit issues

Quant Trade Process Part 4 Improve your trading Track trades P/L Short vs. Long Decisions – overrides, adds, longer holds, etc. Analyze trading results Optimize Evolve

Quant Trading Scenarios Black box vs. Human execution System vs. Discretionary Unusual circumstances Changing Cycles Efficient Markets??? NOT ALWAYS!

Trading Futures What are futures? Index futures S&P 500 futures= Physical vs Financial, delivery vs cash-settled Index futures S&P 500 futures= Very liquid Very transparent (marked-to-market each day) Low commissions ($2.40 per $74,000) High leverage Low barriers to entry Managed futures

My Company – Turning Wheel Capital Start up trading business similar to hedge fund Manage money for outside clients and myself Began Jan 1 2007 with $25,000 of my own $ while working at a hedge fund August 1 2007 $62,000 in assets, my own $ November 2007 $1.2MM in assets, 3 outside clients Goals February 2008 $3MM AUM November 2008 $10MM December 2009 $100MM

My background Victor Niederhoffer 2004-2007 MBA, Yale SOM 2004 apprenticeship MBA, Yale SOM 2004 Start up companies 1999-2002 Poker 1997-1999 Start up companies 1994-1997 Music 1988-1994 NYU B.A. Music Technology 1992? UNC-Chapel Hill 1987

Money making personality Appetite for risk Analytical mind Competitive Driven to win Sports, Poker, Games Survivor Quant Trader Characteristics Puzzles, games Counting Logical, analytical, problem solving Music Patterns

Be a star Figure out what you truly want – 95% of the game Be honest with yourself and others Take risk – but try to weigh consequences Hold out for what you want – don’t settle Trust your gut – have conviction Do your own research – question the experts Don’t be a sheep Try to be the best in your field, reach for brass ring Focus on the process and the results will come 800% return in 2007 Market Wizards by Jack Schwager

Questions? ?