Episodes
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In the domain of quantitative finance, the juxtaposition of mean reversion and trend-following strategies constitutes a pivotal dialogue in the formulation of robust trading paradigms. Each methodology is underpinned by unique theoretical and empirical foundations, presenting distinct opportunities and inherent vulnerabilities. However, when synthesized within a cohesive portfolio framework, these strategies reveal a profound synergy that not only enhances diversification but also attenuates systemic risks. This discourse delves into the nuances of each strategy and elucidates their integrative potential.
www.thealgorithmicadvantage.com
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Wayne Himelsein, President and CIO of Logica Capital Advisors, has developed a robust approach to options trading centred on long volatility strategies that balance systematic rigor with human oversight. His methodology involves "gross long volatility," rejecting short volatility trades to ensure full protection during market downturns, and dynamically adjusting positions through a technique he calls "scalping to fund long vol." This process leverages mean-reverting market behaviours to offset the inherent costs of options while maintaining asymmetric risk-reward structures like straddles and strangles.
Supported by extensive quantitative analysis and adaptability to varying volatility regimes, Wayne’s strategies exemplify a nuanced blend of art and science in trading.
More over at www.thealgorithmicadvantage.com
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Episodes manquant?
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The concept of the “Cockroach Portfolio” is a novel take on building a robust investment strategy that thrives across diverse market conditions. Drawing inspiration from one of nature's most resilient creatures, this approach emphasizes adaptability, diversification, and risk mitigation.
Jason Buck runs Mutiny Funds with a core belief that: “Offense wins games. Defense wins championships.” Mutiny’s version of a diversified, all-weather portfolio therefore combines defensive-minded strategies, such as long volatility and trend, with offensive-minded strategies, such as stocks and bonds. Ensuring survival, and reducing draw-downs through time, provides the best opportunity for long-term capital growth.
This show is all about risk management. If you don’t know what ergodicity is, or how you can drown in a river that is 2 feet deep on average, listen in.
Loads more, including contact links and a detailed write-up over at www.thealgorithmicadvantage.com
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One of the standout points from Eric’s approach is the focus on constructing a durable, all-weather portfolio. Eric designed his fund with the idea that it should be able to endure the most uncertain future scenarios, a goal he finds essential for long-term wealth preservation. His strategy blends managed futures, global equities, and laddered treasury bills, with a focus on equal risk contribution across futures & equities.
Eric emphasizes simplicity and robustness over complexity, believing that this provides the best opportunity for consistent performance in both good times and bad.
For Eric, effective trading is a blend of art and science—knowing when to trust the data and when to recognize that the future will always hold surprises. It was extremely interesting to hear Eric’s wisdom that “direct attempts to create a smoother equity curve usually cause more harm than good. They create more problems than they solve”, adding that it is akin to asking for “more infrequent iceberg risk” in order to avoid “frequent, survivable, nuisance risk”. The solution being to build something that is robust and durable on a stand-alone basis, then something else, and then something else. Pick the ones that play well together and combine into a portfolio!
More detail, tools and so on over at www.thealgorithmicadvantage.com
Reach out with questions / suggestions!
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Today we spoke with Corey Hoffstein, a well-known market practitioner with a deep and broad knowledge across quantitative trading & trend following, but also across developing investment products for wider advisor distribution. I’m super interested in almost every aspect of the financial markets, because I feel like a broad and generalist knowledge helps me make better trading and business decisions. Corey hits the nail on the head when he says that a given industry participant may be making optimal business decisions which are sub-optimal trading decisions.
If we are aware of this kind of behaviour, it can help shape the way we trade. More than that, understanding market participants, infrastructure, technology, business motivations, and so on, is critical to effective trading. At a basic level, this would include knowing the exact differences between the execution of a market versus a limit order for example. It builds from there, but the point is, it doesn’t hurt you to gain more and more knowledge of how the markets ‘actually work’.
So much more over on the website:
www.thealgorithmicadvantage.com
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Gary Antonacci is back on the show after having released a new research paper with Carlo Zarattini from Concretum Research which constitutes a 100-year study on trend following US sectors. The strategy deployed in the paper has an impressive long-term track record, averaging an annual return of 18.2% with 12.6% volatility and a Sharpe Ratio of 1.39. Using Keltner and Donchian channels for entries & edits, volatility-based position sizing and a universe of 48 sectors, the simple model is surprisingly robust and a testament to the enduring power of trend following.
Get all the links over at www.thealgorithmicadvantage.com
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The Power of Multi-Strategy Diversification
Laurens Bensdorp’s trading philosophy revolves around diversification—not just in markets, but primarily in the strategies themselves. He is famous for referring to the art of building new strategies which compliment his existing suite as “designing models to fill potholes”.He trades across various styles, including trend following, rotational momentum and mean reversion, and he manages these strategies across both long and short strategies. By doing this, Laurens aims to capture profits in all market conditions, whether they are bullish, bearish, or sideways.
So much more over at www.thealgorithmicadvantage.com
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In our second Trading Think Tank round table discussion we bring together two exceptional minds in the trading technology space to talk about building back-testing applications: in the blue corner representing Python - Jason Strimpel, an experienced quantitative risk manager, trader and technology leader, and in the red corner representing his own application (Real Test), Marsten Parker, a legendary systematic trader and bona fide Market Wizard. The discussion dives deep into the nuances of back-testing proficiently, highlighting the importance of understanding the underlying mechanisms in your chosen engine and the diverse approaches to creating robust trading strategies with the powerful tools we have on hand in the modern era.
Discounts on the Python for Finance course as well as links to the software and data providers are all on our site: www.thealgorithmicadvantage.com/tools
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Tom Basso, famously coined 'Mr. Serenity' in Jack Schwager's "New Market Wizards" book, joins us for an enlightening and entertaining discussion. On a particularly turbulent day in the market, with the VIX making one of its largest ever moves, Tom shares his calm and collected approach to trading.
Tom’s trading approach is like a finely tuned orchestra, using seven different strategies across multiple markets and timeframes. He doesn’t let any single position dominate his portfolio. Instead, he balances everything out, making sure he's ready for whatever the market throws at him. Whether it's ETFs or futures, Tom adapts his diversified strategies to fit the market and the investor.
Tom shares some great stories and wisdom from his trading journey. From his interactions with Jack Schwager to Van Tharp, he emphasizes the importance of self-awareness and staying balanced. His philosophy is all about being cool, calm, and collected—just like him.
Tom’s all-weather trading approach is a blend of multiple strategies and extensive diversification. He’s always ready for anything the market can throw at him. His ability to adapt and stay serene in the face of market volatility is a lesson for traders of all levels.
www.thealgorithmicadvantage.com
www.thealgorithmicadvantage.substack.com
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Andreas Clenow needs no introduction and has a lengthy history in the algorithmic trading industry. A Swed who has lived in Switzerland for quite some time he has recently published a fiction novel set in the underworld of the secretive Swiss banking industry. He says you can learn more about finance from that than his textbooks! His contribution to the field of systematic trading has been enormous, with his three absolutely invaluable books: Following the Trend; Stocks on the Move; and Trading Evolved. The books cover everything from futures trading to stocks and then to programming it all in Python yourself. Clenow’s books go into great detail and give you all the strategy detail needed to get you moving.
We had an insightful discussion with him about the strategies in his books and then about his latest venture: a new mobile app called Hush. It’s essentially a fund for the broader audience so we were particularly keen to uncover the strategies he is deploying in there.
Trade well & prosper!
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Keep It Simple!
In our latest podcast, we had the pleasure of speaking with Dave Aspell, the Senior Portfolio Manager from Mt Lucas Management. Dave shared invaluable insights into his trading journey, the history and evolution of Mount Lucas, and the firm's unique approach to trading equities and futures. In this show we explore how Dave and his team trade, the super simple strategies they employ, and the key philosophies underpinning their approach.
www.thealgorithmicadvantage.com
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In this absolute cracker of an interview, Perry highlighted how increased market participation and technological advancements have influenced the efficacy of trend following strategies. He also provided insights into the shifting dynamics of the market, emphasizing the need for longer calculation periods and more sophisticated risk management practices as the markets mature and become more volatile.
Perry's view on trading many markets versus concentrating on only a few involves weighing the benefits of diversification against the potential for higher returns through focused trading. Rich and I tend to think that there are ways of having your cake and eating it too – whereby there are ways to expand your universe while increasing profits. However, there are significant differences to the approach whether trading futures or equities, and this became a key part of the discussion.
Futures offer market diversification and leverage that is very different to equities. Stocks, on the other hand, consist of an enormous universe, making a ‘relative’ selection (and ranking) more necessary.
Interestingly though, Perry essentially trades the same strategies on both futures and stocks. The absolutely critical part of Perry’s strategies, in both the futures and stocks, is the nature of his ranking process. He effectively rotates candidates in and out of the portfolio based on their recent system performance. Importantly, ranked by their absolute returns only, and not any risk-adjusted method. Tune in for a deep dive on all his models, his portfolio construction & risk management process!
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All the secrets of the Medallion fund revealed! Well, our speculations about the secret sauce anyway.
Today, in a special tribute to Jim Simons, we are privileged to welcome the multi award winning journalist & author Greg Zuckerman to our podcast. Greg's detailed chronicle of Jim Simons' life in his book, "The Man Who Solved the Market," offers invaluable insights into Jim's genius and the remarkable team he assembled. Simons’ strategy of bringing together the best minds in mathematics, physics, engineering, and other disciplines created a powerhouse of talent that drove Renaissance Technologies to unparalleled success.
With gross returns of over 68% from 1988 through to 2022, this quant firm rules them all. Head on over to www.thealgorithmicadvantage.com for a full write up on the Medallion fund.
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If you have questions, all the answers are here! In this first episode of a new series we are calling the 'Trading Think Tank' we sit down with a panel of experts and really deep-dive a single topic. In this show it's all things diversification.
What do we really mean by diversification anyway? How many markets do we need to trade? If 'more is better', why exactly is that? What is the relative value of diversifying across markets (such as stocks, bonds, currencies, commodities) versus diversifying across strategies (having multiple models of different types, time-frames or parameters)? Can a basket of stocks be 'diversified' or is the risk of their auto-correlation too high, particularly in an extreme event (the one we really care about that can send us broke)? How much capital is required if one wants to trade a diversified range of futures contracts? Are there alternatives, such as trading CFD's? Is it all too complex? Should we overlay volatility smoothing techniques into our models?In this episode, literally jam-packed with actionable intel, Rich and Simon are joined by Moritz Seibert and Jerry Parker to discuss all of this in detail in the context of trend following.
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In an insightful episode of "The Algorithmic Advantage" podcast, we are joined by Gary Antonacci, a notable figure in the finance sector, best known for his innovative dual momentum investment strategy. With an illustrious background that includes an MBA from Harvard and substantial experience in various facets of the financial industry, Gary shares his journey from working in brokerage to collaborating with trading legends in managed futures, and ultimately to his pivotal discovery of momentum investing. This strategy, which he meticulously developed and shared through his influential book, Dual Momentum, has significantly impacted the investment models used today by many family offices and significant investors.
I thought it was interesting to hear Gary clarify, post-show, why he chose the terms he did for absolute and relative momentum, and I thought it would be well worth sharing here. Essentially, he prefers ‘relative’ to ‘cross-sectional’ and ‘absolute’ as opposed to ‘time series’ momentum.
Cross-sectional applies when you segment a single market into group rankings such as deciles based on returns over a given lookback period. Relative momentum is more inclusive. It includes this but also can be applied when you compare the performance of different assets. It makes no sense to refer to that as cross-sectional momentum.
Absolute momentum makes more sense than time-weighted momentum since all momentum looks at economic time series in the form of asset returns.
Investors are familiar already with relative and absolute returns. Referring to momentum the same way makes intuitive sense.
Visit the website for links to resources discussed on the show: www.thealgorithmicadvantage.com
Please share the show with someone and help us get the word out there!
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In this engaging podcast episode, Joris Bastien shares his unconventional journey into the world of quantitative trading, originating from his mathematical background and leading to innovative roles in the finance sector. Bastien discusses his transition from IT development to becoming a pivotal figure in trading system design, emphasizing his unique approach of leveraging quantitative hedge fund strategies to create versatile trading systems. His narrative highlights the importance of adaptability and seizing opportunities in the evolving financial landscape.
Delving deeper, Bastien reveals his methodical approach to trading, prioritizing system diversification over traditional asset diversification to manage risk more predictably. He also shares his insights into the future of trading, particularly the role of cryptocurrencies like Bitcoin as alternative investment vehicles. Bastien's story is not just about his professional evolution but also a testament to the power of innovation and strategic thinking in the dynamic world of finance.
Get in touch with Joris:
x: https://twitter.com/quantaraxia
li: https://www.linkedin.com/in/jorisbastien/
w: https://www.quantaraxia.com/
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Recorded: 12 Dec 2023
In this episode of the Algorithmic Advantage podcast, we chat with our friend, legend ‘original turtle trader’, Jerry Parker. The discussion traverses Jerry's remarkable journey, beginning with his foundational experiences in the renowned Turtle Program, where he gained invaluable knowledge in trend following and risk management under the guidance of expert mentors. Jerry shares his transition from learner to leader as he recounts the challenges and triumphs of starting his own fund, Chesapeake, highlighting the importance of adapting trading strategies, managing investor expectations, and the crucial interplay of trading skills with essential business acumen.
The conversation then shifts to explore the evolution of Jerry's trading methodologies. He talks about his team's relentless pursuit of refining their trend-following strategies, incorporating a wider array of markets, and experimenting with innovative approaches like trend-following spreads. Jerry's commitment to the core principles of trend following, balanced with a willingness to embrace new market opportunities, is a recurring theme. He also candidly addresses the psychological aspects of trading, emphasizing the mental resilience required to navigate market pressures and maintain unwavering faith in one’s system. Throughout the episode, Jerry's insights offer a deep dive into the complexities and nuances of professional trading, making it a must-listen for anyone interested in the art and science of market trends.
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In this episode of The Algorithmic Advantage podcast, we dive into the fascinating world of quantitative trading with Dr. Tom Starke, a renowned expert in the field. With a rich background inphysics (PHD) and engineering, Tom shares his unique journey from academic institutions and engineering firms to the dynamic arena of stock trading. His transition from a structured scientific career to the unpredictable financial markets offers invaluable lessons for anyone intrigued by the intersection oftechnology and finance.
Throughout the episode, Tom delves into the nuances of quant trading, discussing the blend of art and science in strategy development, the importance of micro alphas for diversification, and the challenges of risk management in today's volatile markets. He also sheds light on the potential of AI and machine learning in trading and offers a glimpse into the future role of quantum computing in finance. His insights not only illuminate the complexities of algorithmic trading but also emphasize the necessity of continuous learning and adaptability in the ever-evolving world of finance.
Recorded: 12 Dec 2022.
www.thealgorithmicadvantage.com
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In this insightful second episode with Horizon3, Sanj and Paul delve into the complexities of systematic trading and the evolving landscape of the financial markets. The discussion kicks off with a critical look at traditional trading dogmas, emphasizing the importance of diversification and the challenges faced in adapting strategies to the dynamic post-Global Financial Crisis environment. The conversation then pivots to a nuanced analysis of current macroeconomic trends, focusing on the implications of central bank policies, the nuances of inflation, and the need to move beyond conventional wisdom in risk management.As the episode progresses, listeners are treated to an in-depth exploration of Horizon3's unique trading model, highlighting the integration of advanced risk controls, pattern recognition, and digital signal processing. This is followed by a compelling segment on the potential impact of quantum computing on financial markets. The speakers share their macroeconomic outlook, predicting a severe recession and a resurgence of inflation, urging investors to be strategic in their approach. The episode concludes with a teaser about Horizon3's upcoming initiatives and technological innovations, inviting listeners to stay updated through their website and LinkedIn. This podcast is a must-listen for anyone interested in understanding the intricacies of trading and investment in today's rapidly shifting economic landscape.Get in touch with Sanj & Paul from Horizon3: w: https://h3im.com/ li: https://www.linkedin.com/in/stayfrosty/ li: https://www.linkedin.com/in/paulnetherwood/
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In this engaging episode of The Algorithmic Advantage, we explore the fascinating world of quantitative trading with experts Sanjeev Lakhanpal and Dr. Paul Netherwood from Horizon3 Investment Management.
The discussion highlights Sanjeev's unique journey from physics to finance and Dr. Netherwood's transition from scientific research to trading systems development, illustrating the diverse skill sets in the field. Key focuses include the innovative use of Digital Signal Processing (DSP) to analyse market trends and the integration of adaptive pattern recognition in trading strategies, showcasing Horizon Capital's unique approach to navigating the complex financial markets.
Get in touch withSanj & Paul from Horizon 3:
w: https://h3im.com/
li: https://www.linkedin.com/in/stayfrosty/
li: https://www.linkedin.com/in/paulnetherwood/
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