We see what is lit

It is midsummer's day. I'll find myself in Copenhagen later today. The sun will set there later than it would have done in London. As the days become lighter, so does the mood, as summer approaches. From tomorrow, the days will begin to shorten, and so we begin that march back to winter. It is not purely the mood, that light affects. Everything changes in the light. Stating the obvious, we see what is lit. To our eyes, anything outside the sphere of light is unknown.

During our careers, it is far too easy to see only that light which is shining upon our own industries and our sector within it. To some extent, this seems reasonable. I have spent my entire working career in currency markets. Slowly, I am starting to analyse other markets in more detail. However, they seem somewhat hazy, compared to the way I view currency markets. Everything just seems that bit easier to understand in that area where you have the most experience.

It can be tempting to stay with what your know and to specialise. There is intrinsically nothing wrong with specialisation. It is after all, the way we can add significant value, using skills we have learnt in our own fields, which others may not have. At the same time, often ideas can come from unexpected places, perhaps from other areas where you have little experience. This thought has been mulling around my head for a while, and indeed it is somewhat I discussed in my book, the notion that thinking laterally can have value.

I just went to the PyData conference in London. It got me thinking about this notion again. Unlike most events which I attend, the focus was not on finance. Instead it discussed how data scientists in other fields approached their problems and technical implementations in Python. I heard a talk from Emma Prest and Billy Wong from DataKind UK describing how they used masses of data from the Citizen's Advice Bureau to try to predict problems people might have, before they occur, so they could receive preventative advice. There were also talks describing issues facing data scientists in medicine working with messy datasets. Whilst none of these talks might have directly addressed financial markets, I could see parallels between problems faced by data scientists elsewhere could have applications for systematic traders. Often the key was how to understand an unusual dataset.

The difficulty with systematic trading is that there can often be misconceptions about which data we can use. Systematic trading often appears to outsiders to be some mixture of CTAs and high frequency trading. CTAs are generally trend following traders. They literally buy high and sell low, in the hope of a continuation of medium terms trends. The main input is of course price data. As a strategy, it can be a good complement to the more common long only strategies in equities and bonds. I've done a significant amount of work on this subject, creating my own CTA proxy (imaginatively called the Thalesians CTA Index!). High frequency traders by contrast operate over very short horizons, seeking to use knowledge about microstructure of the market combining it with cutting edge technology to reduce latency. However, systematic trading is a whole lot more than CTAs and HFTs! 

The data we can use to trade markets is so much more than purely market prices. We can use reams of fundamental data, such as economic release data. We can harvest news data to generate trading signals. We can examine web traffic and tweets to gauge sentiment for trading. We can see how market participants are positioned to understand price action. The list is endless!

The critical element is of course a willingness to spend time to get to know what value these more unusual datasets can hold for traders. It also requires systematic traders to step outside their traditional "comfort zone" of familiar datasets and try to learn from what data scientists are doing elsewhere. Just because something isn't "finance" related, it doesn't mean we as systematic traders can't learn from it. Equally, I think the same is true of any field. Value, in particular these days, comes from an ability to combine ideas from multiple disciplines (as Thales of Miletus showed several millennia ago, which I discuss in my book!

So enjoy today. The light will be shining most today.

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, Budapest, Prague and Frankfurt - join our Meetup.com group for more details here (Thalesians calendar below)

26 Jun - Budapest - Bruce Packard & Panel - Emerging Alternative Finance
22 Jul - London - Paul Bilokon - Stochastic Filtering (title TBC)
07 Sep - Frankfurt - Saeed Amen/Yves Hilpisch/Thomas Wiecki/Jochen Papenbrock/Miguel Vaz/Adrian Zymolka - Quant Evening (Thalesians/Quant Finance Group Germany)
Early Sep - Zurich - Saeed Amen - How to build a CTA (date TBC)

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The market loves to punish hubris

History is one of those things which seems pervasive, an influence on the present and the future. Rather than being some sort of static list of events from the past, it is anything but static. History gets reinterpreted over time. Forgotten events become clearer in our collective memories as anniversaries loom and historians find new evidence from the past. Every city has its own history, its own story of how it came to be. Take York for example, which I just visited (see York Minster above), it is built upon the roads which one day Romans paved with their bare hands. All road were literally built to find Rome. Today, it stands at the intersection of many different ages.

In the same way, during our own careers, we each build our own history, our own experiences, which help us to map the present and the future. Whatever experiences we might have, they will always be unique, although they will bear some similarities to others. Our experience will also be heavily of influenced by the history of price action during our careers. Looking at a plot of EUR/USD and the various highs and lows, often brings back memories for me, of what type of strategies I was working on at the time.

In financial markets, the phrase of "this time is different" rarely rings true. Yes, markets change in some ways, but events seem to reoccur. People inevitability end up borrowing too much, fuelling a risk rally which inevitably ends. That process has forever been repeated and will never end! The relative inexperience of traders could be one cause. Equally, another cause could be that experienced traders might misinterpret the current market in terms of historic events which are subtly different.

As has often been remarked, many traders working today have never been in a market when the Fed has hiked (I'm sure I've seen a fantastic plot going round on Twitter illustrating this, but I've not been able to find it). How will they react when this happens? This is far from a criticism of younger traders. They bring a different perspective on the market. I personally know a number of excellent younger traders, even some who are barely into their twenties (@JeremyWS being one, who you should follow if you're on Twitter). At the same time, experience need not mean a trader is necessarily always better. It is the quality of experience which counts.

So which would be best for banks, younger traders or experienced traders? Neither one, nor the other, but a mix of both. Younger traders can be helped by experienced traders, to get to grips with what seem to be new situations in markets. Equally, experienced traders can see a different perspective, when working with people who are seeing market events in a new light.


Old and young can teach one another, when it comes to markets, whether it's in trading or in other areas, like quant strategies or risk management and so on. The biggest mistake happens when either of these groups think they know it all, when it comes to markets and they do not need the other group. No one knows it all and it is when they think do, that is when they can lose the most. The market loves to punish hubris.

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, Budapest, Frankfurt and Prague - join our Meetup.com group for more details here (Thalesians calendar below)

17 Jun - London - Man-AHL & Saeed Amen - Using Python to build trading strategies
18 Jun - New York - Dr. Tim Leung - Exchange-Traded Funds and Related Trading Strategies - IAQF-Thalesians
26 Jun - Budapest - Bruce Packard & Panel - Emerging Alternative Finance
22 Jul - London - TBA

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Growing cocoa in Frankfurt

Frankfurt is perhaps best known for certain things, notably, being the home of a number of financial institutions, such as the ECB and the Bundesbank. It is also the home of the Frankfurter. However, in amongst the moneyed streets of this city, somewhat unexpectedly, lies the Palmengarten, one of Germany's largest botanical gardens, acres of greenery and greenhouses, slightly at odds with the urban environment which surrounds it.

In an act of wanton procrastination, I decided to visit the Palmengarten. Sitting in a Starbucks working on some slides for a presentation I was due to deliver the next day in Frankfurt, could wait for a few hours, I guessed. At the centre of the Palmengarten sat a large Victorian era greenhouse (above), filled with tropical plants and a small exhibition about the wonders of chocolate and cocoa. It opened with a line from Goethe about chocolate (I have to say, my German isn't that great, so would be great to know the precise translation, if your German is better than mine!):

Wer eine Tasse Schokolade getrunken hat, der hält einen ganzen Tag auf Reise aus. Ich tue es immer, seit Herr von Humboldt es mir geraten hat.

I rarely need any persuasion when it comes to understanding quite how wonderful chocolate is, although a sign of approval from Goethe is of course welcome. Amongst the many souvenirs available in the gift shop were bars of chocolate, made from cocoa grown in the glasshouse at the Palmengarten. It was quite remarkable to think that such a humble plant, such as the cocoa plant is the basis of the whole chocolate industry. It also got me thinking about the presentation I was due to deliver the next day at Frankfurt's first Open Source in Quant Finance conference, organised by the ever enthusiastic Python expert and author, Yves Hilpisch.

Just as the cocoa plant had created a whole new industry around chocolate, so open source software has created a large ecosystem of individuals and companies, who write it and use it. Indeed, many of the presentations at the conference, demonstrated the breadth of products or projects which were either open source or were built around open source software. They ranged from funky charting products (Plotly) to interfaces for getting Excel spreadsheets to work with Python (Zoomer Analytics).

Of course, there is always a question, why should you open source software, essentially giving it away? (Unfortunately, there is no parallel here with the chocolate industry - they don't give away their products for free!) There were many reasons given in Thomas Wiecki's (Quantopian) presentation. He suggested that it was very much a two way process. You might well give away an open source project, which you have spent hours working on, but others will contribute towards it and improve it in return. It also gives your skills as a developer in a visible fashion, in a way that a CV might fail to do. I've found this before, showing people your code or research, which shows what you've done, rather than a CV which says what you've done, can be immeasurably more powerful.

Furthermore, Thomas noted that you can always separate out the "secret" elements of your software project with the open elements. This is indeed something that I've observed in many companies including more secretive institutions like hedge funds. Here there is a definitely parallel with the chocolate industry. They all use the same raw ingredients, like cocoa and milk, and there is no secret how to obtain them. However, the precise process of creating the chocolate differs between manufacturers and this is more of a secret. Not everything needs you do needs to be a secret for the output to be truly unique.


All I know is that the next time I'll be visiting Frankfurt, I'll be thinking about chocolate first and perhaps, finance second. And the next time I have a chocolate bar, I wonder whether I'll be thinking of open source software.

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 Meetup.com group for more details here (Thalesians calendar below)

17 Jun - London - Man-AHL & Saeed Amen - Using Python to build trading strategies
18 Jun - New York - Dr. Tim Leung - Exchange-Traded Funds and Related Trading Strategies - IAQF-Thalesians
26 Jun - Budapest - Bruce Packard & Panel - Emerging Alternative Finance

22 Jul - London - TBA

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