The Algorithmic Advantage

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

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

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”.

So much more over at www.thealgorithmicadvantage.com

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

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

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!

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

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!

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.

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?