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

2. 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.” –
Observe behavior
Counting
Statistics
Price movement vs. technical vs. fundamentals
Market moves may not repeat, but they often rhyme

3. 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

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

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

6. 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?

7. 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

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

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

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

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

12. 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

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

14. 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

15. My Company – Turning Wheel Capital
Start up trading business similar to hedge fund
Manage money for outside clients and myself
Began Jan with $25,000 of my own $ while working at a hedge fund
August $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

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

17. 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

18. 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

19. Questions? ?