Saturday, 7 November 2015

In Notts over Salford-ing the stream

17:02 Posted by The Thalesians (@thalesians) No comments

At the top of the English football pyramid sits the Premier League, with the likes of Chelsea and Manchester playing in front of tens of thousands of spectators, cheering (or jeering) as well known footballers ply their trade. Below, that, there's the Championship, League One and League Two, collectively known at the Football League.

Then we have National League System, consisting of semi-professional clubs, such as Salford City, below that. Salford City is in the Northern Premier League Premier Division. To get into League Two, they would have to first be promoted to Northern League North, and then have to win the National League. So if the Premier League were level 1, Salford City would currently be level 7.

Why am I talking about Salford City? Well, this week, Salford City managed to overcome Nott County, sitting 59 places above them in League Two in the first round of the FA Cup, quite an achievement! By any standards, there isn't a level playing field in football. Whilst, the Premiership might bask in vast sums of money, at Salford City's level, most of the players have other jobs. Whereas, players in the Premiership might change teams for millions of pounds, for Salford City, their recording signing, cost 5k! 

When it comes to markets, there has also never been a level playing field. Large institutions have a large amount of capital not only to invest in markets, but also to fund analysis of the markets and skilled traders to risk manage that risk. So should, we just give up, if we don't have their advantages?

No, because in fact in many other areas of the market, the gap has been closing because of technology and the greater availability of data! The growth of open source software, means for example it is far easier to analyse markets, without having to write all the code yourself. Take Quantopian's platform, which uses a Python based library zipline. All the nuts and bolts for downloading data and backtesting trading strategies are already there for you. It'll even trade in automated way for you. You can just spend your time on coming up with signals, rather than all the plumbing around it. I've written my own open source library PyThalesians for doing backtesting, and have used it for developing trading strategies myself. Whilst, I haven't open sourced the specific trading algos I use, pretty much everything else, I have open sourced. I've used a lot of open source libraries myself, to develop it such as pandas for manipulating time series and numpy for doing mathematical calculations.

So just like Salford City, facing big league competition, even if the playing field isn't quite level, it doesn't mean we should give up! Just means we have to work smarter, using open source software where we can, so we don't have to reinvent the wheel, so we can concentrate our efforts on building the trading strategies themselves, which of course will still require time. It's just about focusing your time where you can add the most value. There's always a rainbow somewhere, provided you can find it!

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 interested 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, Budapest, Prague, Frankfurt, Zurich & San Francisco - join our group for more details here (Thalesians calendar below)

14 Nov - New York - Thalesians/IAQF - Andrey Itkin - Efficient solution of structural default models
25 Nov - London - Panel - Macro Markets Discussion
26 Nov - Zurich - Thomas Schmelzer - Portfolio Optimization, Regression and Conic Programming
14 Dec - London - Matthew Dixon - Machine Learning in Trading (Thalesians Xmas Dinner)


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