All along the watchtower

In days past, I had compact discs (or even cassette tapes). I'd listen to albums from end to end. With the advent of music compression such as MP3 and subsequent innovations like Spotify and Apple Music, we digest our music in very different ways. I've noticed that I listen to a much more eclectic array of music genres with streaming. No longer do I simply restrict myself to listening to albums from end to end, by artists I already know. Instead, I dip into the unknown and hear whatever Apple Music might throw at me. At times, it fails (hey, Apple, I don't like teenage pop bands). However, other times, I stumble upon music that I actually like, helped along by some weird algo concoction.

Recently, I came across some of the music of Bob Dylan. I'm sure we've heard of a lot of his music, whether it's in the original or in the many covers of his works. What struck me, when you listen close to the lyrics of tracks such as All Across the Watchtowers, is that interpretation, very much depends on the listener. It's just often, sometimes the lyrics go over my head, because I tend to hear the music first and the lyrics later. Try Google-ing the lyrics, and you'll find many conflicting interpretations. It also depends at what level we seek to interpret a song. The same approach applies to images. Take the image above, we could either interpret as 5 hoops, or more likely, it is related to the Olympic movement and Hungary's place in it. One anonymous interpreter of the song noted, rather comically a quotation by James Joyce:

I've put in so many enigmas and puzzles that it will keep the professors busy for centuries arguing over what I meant, and that's the only way of insuring one's immortality.

The many ways we can interpret song lyrics and images more broadly, got me thinking about the market. The way in which we are always trying to read something into it. Unlike of course, songs, there is no writer of the market. Instead, we have traders individually "writing" to the market, with differing views (after all, without differing views, you would have no market) - each them interpreting the potential future in a differing ways and with different time horizons. When traders' views about the future coalesce, markets trend. When there is disagreement, we see markets without a clear direction. Show a chart to two technical analysts and you can often get different answers about what they think it might all mean.

So who is right? In a sense, it is not so much about having the "right" or "wrong" interpretation about markets. It is more about understanding which interpretation the market will have. Furthermore, we need to recognise that some strategies might well be wrong more than they are right.. is it the size of the winning trades that matter, which is the case with trend following strategies.

But hey, it's Saturday evening, as I'm writing this, time we are went to listen to some Bob Dylan.

If you're on the US East Coast, I'll be in Washington DC 27 Sep, NYC 29 Sep-3 Oct and Boston 5 Oct if you'd like to meet me and hear more about systematic trading! If you're in mainland Europe, I'll be in Frankfurt 7 Sep, Zurich 8 Sep and Paris 6-9 Oct.

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

07 Sep - Frankfurt - Saeed Amen/Jochen Papenbrock/Miguel Vaz/Adrian Zymolka - Quant Evening (Thalesians/Quant Finance Group Germany)
08 Sep - Zurich - Saeed Amen - How to build a CTA? / interactive Python demo
10 Sep - San Francisco - Steven Pav - Portfolio Inference and Portfolio Overfit
23 Sep - London - Stephen Pulman - Multi-Dimensional Sentiment Analysis
01 Oct - New York - Saeed Amen - How to build a CTA? / interactive Python demo
21 Oct - London - Robert Carver - Lessons from systematic trading

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Give your ideas a Proust

I've started reading Proust's epic In Search of Lost Time. It's my project to try to finish reading it by the end of this year. The work consists of 7 volumes and 1,267,069 words when written in the original French. In an age, where messages consist of 140 characters and words stream at us from every which direction, on the web, on Twitter, on our phones, it can sometimes seem quaint, the notion of spending months on end, reading a substantial work of literature. In the modern day, I'd argue the rationale for reading longer pieces of literature is even stronger, to contrast with the usual diet of abbreviated English, which we are often exposed to on the web.

Of course, it seems hopelessly optimistic that I'll finish reading this epic, in such a short time (or whether I'll even finish it at all). Whilst reading it, what becomes quickly apparent to the reader, is that very little appears to happen. Yet despite this, it is peculiarly engrossing. There's a certain deliciousness in revelling in the way, Proust is able to envelope the reader in layers of description. The act of sleeping, could just be described in a single sentence. Instead, Proust engages the reader for pages upon pages of prose, to engage the reader in the most visual way possible. That is the power of language when used properly. Writing is not simply a way to furnish a reader with facts, but a way to make the reader view the world differently.

In finance, the importance of writing is sometimes overlooked. If an article makes a good point about the market, yet is written sloppily, readers will simply turn off. I'm not saying, we should spend hundreds of words engaging in prose like Proust to describe something. It is just that having clear and entertaining language, can aid a reader to see your viewpoint, as opposed to have dry monotonous language, which sends them to sleep. 

We can also learn from Proust, if we think about the way he visualised his thoughts. I love maths. At the same time, I recognise that bombarding people with tables filled with numbers, is not going prove my point, about a trading strategy or a certain idea I have about the market. Having a well thought out visual way to present your thoughts can be extremely powerful. Furthermore, it can encapsulate a very complicated market dataset in one single chart. In my open source Python library, PyThalesians, I have spent quite a bit of time building easy to use wrappers for a number of visualisation libraries (which I'd encourage you to check it out on GitHub here) for this very reason. A picture really does say a thousand words, plus a picture is quick to interpret! Just like the picture which gives you a sense of the landscape immediately, in a way, that would be more difficult when simply relying on a few words.

Will I finish reading Proust, I don't really know.. what I do know, is that I've learnt a lot from starting on this journey. What will you learn from Proust? Hopefully he'll give your ideas a Proust...

If you're on the US East Coast, I'll be in Washington DC 27 Sep, NYC 29 Sep-3 Oct and Boston 5 Oct if you'd like to meet me and hear more about systematic trading! If you're in mainland Europe, I'll be in Frankfurt 7 Sep and Zurich 8 Sep.

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

07 Sep - Frankfurt - Saeed Amen/Yves Hilpisch (tbc)/Thomas Wiecki/Jochen Papenbrock/Miguel Vaz/Adrian Zymolka - Quant Evening (Thalesians/Quant Finance Group Germany)
08 Sep - Zurich - Saeed Amen - How to build a CTA? / interactive Python demo
23 Sep - London - Stephen Pulman - Multi-Dimensional Sentiment Analysis
01 Oct - New York - Saeed Amen - How to build a CTA? / interactive Python demo
21 Oct - London - Robert Carver - Lessons from systematic trading

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Football's coming home

"Some people believe football is a matter of life and death, I am very disappointed with that attitude. I can assure you it is much, much more important than that." Bill Shankly, former Liverpool manager. 

It's the first day of the football season in Britain. Tomorrow, the newspapers will be awash with goals scored, players booked and fans agonising. I've picked my Fantasy Football team, which I've entered into a league with a few friends. I have little doubt that I'll end up being at the bottom of the league. I really don't know enough to make any educated judgements about the players. Which striker will score the most? I've got no idea. Which keeper will save the most goals? I've got no idea. That doesn't matter though. To enjoy the game of football, you don't need to have an encyclopaedic knowledge, you just need to take part and watch as part of the crowd.

What I do know about football is that it makes memories, some joyful, some less so. I can remember Zidane running rings around his opponents and his last sending off. I can remember Cantona, winning the FA Cup and his kung-foo kick. I can remember Messi, slipping past defenders on his way to goal and walking past the World Cup trophy, unable to hold it aloft. Success and failure. You cannot have one without the other. The fear of failure is what makes the joy of success so palpable. When success is assured, what point is there in trying?

Like football, markets are made of memories, some joyful, some less so. There's the market's joy when equities are rallying. The market is making money. Then there are the lows, the crises and the uncertainty which surrounds them. Traders are glum, their screens are awash with the colour red, signalling losses in their portfolios. If anyone tells you trading is easy, it's clear they have little idea what actually impacts markets. Yet, just as with football, it is failure and the risks of losses, that make markets a more exciting place to be, even if it never feels like it at the time. If markets were not challenging, if markets were seemingly "easy", would you learn as much? Would you appreciate it quite as much, when times are good? Likely not. Certainly not. Something which I've written about repeatedly, is that the "pain" from losing cannot be backtested. Whilst, it is not something you would welcome, it is at the very least something to learn from. A failure to learn from a failure, is probably the biggest failure of all.

So in the year ahead of this new football season, your team might well top the table, or it may not. Whatever happens, on the football field or in markets, best of luck! It's better to be lucky, than be bored of the result.

If you're on the US East Coast, I'll be in Washington DC 27 Sep, NYC 29 Sep-3 Oct and Boston 5 Oct if you'd like to meet me and hear more about systematic trading! If you're in mainland Europe, I'll be in Frankfurt 7 Sep and Zurich 8 Sep.

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

07 Sep - Frankfurt - Saeed Amen/Yves Hilpisch (tbc)/Thomas Wiecki/Jochen Papenbrock/Miguel Vaz/Adrian Zymolka - Quant Evening (Thalesians/Quant Finance Group Germany)
08 Sep - Zurich - Saeed Amen - How to build a CTA? / interactive Python demo
23 Sep - London - Stephen Pulman - Multi-Dimensional Sentiment Analysis
01 Oct - New York - Saeed Amen - How to build a CTA? / interactive Python demo (tbc)
21 Oct - London - Robert Carver - Lessons from systematic trading

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Who wants to be a rock star?

Please forgive me. I am going to quote some lyrics from Nickelback's hit "Rockstar" below. I realise these Canadian rockers do not occupy a position in that rarefied space called "cool", but they do have a knack for the occasionally snappy riff and memorable, and somewhat catchy lyrics (this view might not be one shared by you the reader).

'Cause we all just wanna be big rock stars
And live in hilltop houses driving fifteen cars
- lyrics from Rockstar by Nickelback

The rest of the song continues in a similar vein, espousing the benefits of being a rock star. But do we all want to be big rock stars and drive a car like the one above? I suspect many of us wouldn't scoff at the notion (myself included). In my case, I can't sing, I can't play the guitar (although I can play the violin, to what I would term screeching standard), and I can't write music. I like to write, so perhaps I could write a few lyrics. Unfortunately, being a lyricist is not the same as being a rock star. So perhaps the delta, to use option trader lingo, of me becoming a rock star is close to zero.

When it comes to finance, we also have the notion of being a rock star, albeit it doesn't involve catchy riffs or singing. A rock star is the trader who makes the big call and profits from it. A rock star is the strategist who makes the big call and gets the market's adulation when he or she gets it right.

So do you want to be the financial rock star? I certainly don't want to be! I don't want my entire portfolio to be beholden to the whims of one massive trade that could make or break me. Even if your success rate is exceptional (say 55%), that means there's a 45% chance you could be utterly ruined. To me those type of probabilities are not acceptable, whether or not I am trading my own money or anyone else's. By all means make a big call... but if it's too big, you need to think about the consequences of it all going wrong.

I don't want to be the exciting rock star trader, the one with all the adulation. I want to be the "boring trader", the financial equivalent of the bass player in a rock band. The "boring trader" is one who takes many views, in many assets, diversifying my risk as much as possible. True, no trade will make me a "rock star", but hopefully, the downside from every trade will be sufficiently small to prevent too much harm, if any of them go wrong. Slow and steady, rather than quick and aggressive profits.

Maybe it might be better to be the bass player or the lyricist, rather than the rock star out in front, playing lead guitar and singing the lead vocals? What do you think? Do you still want to be a financial rock star, now? I worked at Lehman Brothers. That proved to me that sometimes boring is better than exciting, when it comes to trading.

If you're on the US East Coast, I'll be in Washington DC 27 Sep, NYC 29 Sep-3 Oct and Boston 5 Oct if you'd like to meet me and hear more about systematic trading! If you're in mainland Europe, I'll be in Frankfurt 7 Sep and Zurich 8 Sep.

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

22 Jul - London - Paul Bilokon - Stochastic Filtering
07 Sep - Frankfurt - Saeed Amen/Yves Hilpisch/Thomas Wiecki/Jochen Papenbrock/Miguel Vaz/Adrian Zymolka - Quant Evening (Thalesians/Quant Finance Group Germany)
08 Sep - Zurich - Saeed Amen - How to build a CTA? / interactive Python demo
23 Sep - London - Stephen Pulman - Multi-Dimensional Sentiment Analysis
01 Oct - New York - Saeed Amen - How to build a CTA? / interactive Python demo (tbc)
21 Oct - London - Robert Carver - Lessons from systematic trading

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