Saturday, 28 March 2015

Frank(furt)ly speaking

14:26 Posted by The Thalesians (@thalesians) No comments

I recently spoke at MathFinance's annual conference in Frankfurt, which I enjoyed greatly, organised by Uwe Wystrup and his team. I disagree that speaking about your trading strategies will somehow undermine what you are doing. I very much disagree! It is often possible to describe the vagaries of a strategy without going into all the details (and it is in the details where a quant adds the most value to a trading strategy). If anything, I find presentations an ideal way to solicit feedback about my approach to markets. Speakers can potentially gain a huge amount of benefit, tackling questions they never thought of!

In between the machinations of the conference, I had a few spare moments to see Frankfurt. Compared to my home city London, Frankfurt is admittedly much smaller with nearly 700,000 inhabitants (although this swells considerably during working hours). As a city it is easy to navigate on foot, given its size. There is much more to the city than the ECB, Bundesbank and the rest of banks which have their headquarters in the city.

As in the rest of Germany, the bread is very fresh and the pretzels are excellent (I think I lost count of how many I had in Frankfurt). There's a wide variety of cuisines available, including an excellent Thai restaurant nestled nearby the shopping district. Along, the river Main runs a footpath, which offers a leisurely way to stroll through the centre of the city. Perhaps one of the most unexpected of sights is the Eiserner Steg Bridge, covered in lovers locks, something you might associate more with Paris than a city like Frankfurt.

In essence, any city is a evolving complicated concoction of many people, places and experiences. Our minds love shortcuts, simple descriptions, often veering towards the negatives, rather than the positives. Cairo becomes "busy", Hong Kong becomes "polluted", Frankfurt becomes "quiet". However, this vague stereotyping of places, becomes little more than exercise in imperfect approximation. Whether or not we might agree with such labels, we often recognise them.

This is true of market. In markets, the narrative often hinges around a small number of factors (maybe even a single factor). Whether or not you agree with a current market narrative, attempting to fight it can be futile. Say we think the Fed are wrong not to raise rates quicker than they likely will end up doing. This is irrelevant from a trading perspective. We do not get a vote on the FOMC (or indeed the ECB, pictured above from the Eiserner Steg Bridge).

There is a difference between wanting some event to happen (or believing it to be the best course of action) and the most probable outcome. It is the latter which matters more when we trade. We might not like a market narrative, or an inaccurate label. However, if that narrative is the predominant one, we have to learn to recognise it and act accordingly when it comes to the market. There's little point being right about a factor the market doesn't care about at that time.

Perhaps, one way to illustrate it is as follows... in Frankfurt, it's better to have a pretzel, made locally, rather than a macaron, which is imported!

Like my writing? Have a look at my book Trading Thalesians - What the ancient world can teach us about trading today is on Palgrave Macmillan. You can order the book on Amazon. Drop me a message if you're interesting in me writing something for you or creating a systematic trading strategy for you! Please also come to our regular finance talks in London, New York and Budapest - join our group for more details here (Thalesians calendar below)

17 Apr - Budapest - Impact of bitcoin - Tamas Blummer & Panel featuring Izabella Kaminska / FT)
22 Apr - New York - How Smart Money Invests and Market Prices Are DeterminedLasse Pedersen
29 Apr - London  - Global macro & UK election panel - Eric Burroughs / Reuters, Mark Cudmore / Bloomberg, Jordan Rochester / Nomura, Jeremy Wilkinson-Smith / Independent & Saeed Amen / Thalesians


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