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falcon00
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Joined: January 10th, 2011, 10:58 pm

What are some engineering topics that can help with quantitative trading?

January 15th, 2011, 5:42 am

I have spoken with the guy that started Tradebot the 3rd largest liquidity provider in the US. He launched that company after spending 3 months in his basement coding. His background is in software development. I know at some schools the computer science program is heavily steeped in engineering.He wrote an algorithm that has some 200+ parameters that can be adjusted in real time. I have NO idea what those 200 parameters could possibly be. I could not even guess. The algos I write have like at most 10 parameters. I was wondering if it was possible that his engineering training helped him design something so complex and if so what those topics might be.I have spent the last year learning mathematics because my background is in business (IT and finance). I am now starting to explore other topics that might help with algo trading. So far I was thinking maybe Process Control and someone in another forum suggested Signal Processing. Anybody have any input on these two topics or some others I may want to explore?
 
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Traden4Alpha
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What are some engineering topics that can help with quantitative trading?

January 15th, 2011, 1:38 pm

Personally, I aspire to fewer rather than more parameters. Anyone can fit market data to a 200th-order polynomial, get a great fit in backtesting, and suffer 0 predictive power in live trading. The more parameters, the greater the danger of overfitting unless one has a strong process for estimating the CONSTANT parameters that is independent of market data.As for other topics, I'd look at probability density estimation and operations research (for solving allocation problems). Data visualization can be a fun/useful topic, but one needs to be careful because it is extremely easy to see patterns where none exist.
 
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falcon00
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What are some engineering topics that can help with quantitative trading?

January 15th, 2011, 7:43 pm

Well I don't think just anybody can do what he did. They have NEVER lost money. It sounds like something the marketing department might say but they have been in constant growth. They employ physicist and mathematicians over there. It's like a shop filled with mad scientist. That company is what made me think to step outside finance and look to other subjects.They way I understand it the traders sit around and look at a screen that is filled with sliders and radio buttons for input. IT makes me think that there isn't precisely a mathematical formula that is constantly being calculated but maybe a bunch of formulas that execute based on conditional statements. I've been DYING to get a peak at his algorithms for years. Not to steal them but just out of shear intellectual curiosity.
 
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Salain
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What are some engineering topics that can help with quantitative trading?

January 18th, 2011, 7:29 pm

Since you're interested in how they could come up with 200 parameters, you can explore various types of system identification. There are a lot of methods out there for coming up with a set of parameters that describe (to a greater or lesser extent) a system. Your friend's program doesn't necessarily involve 200 items that you could really put a name to... When I started learning about this, I first read about Wiener analysis, Volterra series, then various types of white noise analysis, m-sequences, and factor analysis. They mostly fall under the heading of Control Engineering. You can find a lot of information about these on the internet - sorry I learned about most of this from primary literature so no books to recommend...
 
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falcon00
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What are some engineering topics that can help with quantitative trading?

January 20th, 2011, 1:01 am

Hey. I looked for books in control engineering and they fell under the heading of chemical engineering. Does that sound right to you. Are we talking about the same subject?
 
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Traden4Alpha
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What are some engineering topics that can help with quantitative trading?

January 20th, 2011, 1:24 am

Look up "control theory". The most useful stuff will be under electrical engineering & maybe mechanical engineering.
 
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Maelo
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What are some engineering topics that can help with quantitative trading?

January 23rd, 2011, 5:41 pm

There should be also under chemical engineering...
 
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Maelo
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What are some engineering topics that can help with quantitative trading?

January 23rd, 2011, 5:48 pm

For example:Process Control: Theory and Applications, Jean-Pierre Corriou & Chemical Process Control: An Introduction to Theory and Practice, George Stephanopouloscover subtantially the same theory and topics that,Automatic Control Systems, Farid Golnaraghi & Benjamin C. Kuo cover... and thiss last text is the de facto standard text in Electrical Engineering courses covering basic control theory.M
 
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daveangel
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What are some engineering topics that can help with quantitative trading?

January 23rd, 2011, 6:19 pm

Quote They have NEVER lost money I am sure they have - or if they haven't its because they haven't been going for long enough.I am not an algo trading expert but I have looked at a few and I think the most "successful" (Sharpe ratio of around 1 over a 5 year cycle) tend to favour parsimonious systems. they think they are more robust. less overfitting.
knowledge comes, wisdom lingers
 
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falcon00
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What are some engineering topics that can help with quantitative trading?

January 23rd, 2011, 8:25 pm

Their individual traders will lose money intraday but as a whole the firm has never lost money i.e. net income has always been positive at the end of the year. They've been running for about 10 years. They're pretty good at what they do and have some large brains working over there. The algos they run are VERY robust and my friend says its set up so they only way you lose money is if you're not paying attention or there is something you don't understand about the market. What I'm trying to do right now is figure out what the owner knew that allowed him to create something so magnificently complex. Also they are high frequency liquidity provides and we are not. They are trying to collect the bid/ask spread and we're looking for return on the appreciation (or depreciation) of the asset. That might make a difference in the design approach but I don't know for sure.
 
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falcon00
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What are some engineering topics that can help with quantitative trading?

January 23rd, 2011, 10:41 pm

Maelo: Thanks for the input Automatic Control Systems is super cheap on Amazon.com.
 
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daveangel
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What are some engineering topics that can help with quantitative trading?

January 24th, 2011, 9:04 am

Quote The algos they run are VERY robust and my friend says its set up so they only way you lose money is if you're not paying attention or there is something you don't understand about the market. really ? Do you buy this ? How did they do in July/Aug 2007 ? I am sure they made money. its not about the size of the brain ... if it was just that then maths/physics schools would be empty and all those "big" brains would be punting the market.
Last edited by daveangel on January 23rd, 2011, 11:00 pm, edited 1 time in total.
knowledge comes, wisdom lingers
 
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falcon00
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What are some engineering topics that can help with quantitative trading?

January 24th, 2011, 10:35 am

My friend is more than happy to tell me the dirty stuff as he is to tell the good so I have no real reason to doubt him especially since his information has been confirmed by different sources. Since they are trying to collect the bid/ask spread they are pretty much market neutral, however, having said that I bet they make a lot more money during periods of high volatility. One thing I know for an absolute fact is that during the deepest darkest periods of the recession they doubled their staff of equity traders.One of my math professors is a pretty smart guy and he has proclaimed that he doesn't care about money (which is always funny coming from someone that has a job). I understand that people have different motivations for doing things so I don't think there is going to be a shortage of professors anytime soon as they all run out to be equity traders. What I do know is that they are doing some really cutting edge stuff over at Tradebot and their HR department isn't picking from the bottom of the barrel.
 
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Maelo
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What are some engineering topics that can help with quantitative trading?

January 24th, 2011, 10:42 am

QuoteOriginally posted by: falcon00Maelo: Thanks for the input Automatic Control Systems is super cheap on Amazon.com.Dont forget to pay it foward, M
 
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marcoaaguiar
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What are some engineering topics that can help with quantitative trading?

February 4th, 2011, 11:43 pm

I'm a automation and control engineering, but I dint see anythink useful until this semester. I'm goin to the sixth semester, we are finishing the basic of classic control.Next semester we are goint to learn multi-variables systems and non-linear control. Could you u tell what area you think that may have somethink interesting to Quant Trading?