1. Session 6: Overview of Trading Strategies 1

2. Agenda 2 Education Session 1: Industry Introduction and Derivatives Overview Session 2: Overview of Market Microstructure Session 3: Prerequisites for Algorithmic Trading System (ATS) Development and Selecting a Platform Session 4: Model Development and Stylized Facts Session 5: Review of the Scientific Method and the ATS Development Process Session 6: Overview of Trading Strategies Research Session 1: Workshop {Next Thursday TBA} Session 2 Workshop {Next Thursday TBA} Competition - 2 weeks (10 days)

3. Agenda 3 Anyone see this?! http://www.nanex.net/FlashCrash/OngoingResearch.html

4. Algorithmic Trading Strategy Development 4 Based on the Scientific Method. Generally, 6 stages :  Formulation and Specification  Backtesting  Optimization  Walk - Forward Analysis  Trading the Strategy Live  Refinement and Evolution

5. Algorithmic Trading Strategy Development 5 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 )

6. Taxonomy of Traders 6

7. Trading Strategies 7  Block Trading  News Trading  Statistical Arbitrage  Time Series Strategies

8. Block Trading 8 Iceberg An 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.

9. Block Trading 9 Sniffers These 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."

10. News Trading 10

11. News Trading 11

12. New Trading 12 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.fr gbld.&pbx=1&bav=on.2,or.r_gc.r_pw.r_cp.r_qf.,cf.osb&fp=49e91e21499bfe9d&bi w=1280&bih=642&pf=p&pdl=300

13. Statistical Arbitrage 13 - Pure Arbitrage $ 5 Shirt Chicago, $ 10 Shirt Tokyo Riskless profit. Convergence to equilibrium – “Law of One Price”

14. Statistical Arbitrage 14 - Reference Other Powerpoint

15. Time Series Strategies 15 - Trend - Cycle - Seasonality - Randomness ( Random Walk )