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Systematic Trading

A unique new method for designing trading and investing systems

By Robert Carver

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About the Author

Robert Carver

Robert Carver worked in the City of London for over a decade.

He initially traded exotic derivative products for Barclays investment bank and then worked as a portfolio manager for AHL - one of the world's largest systematic hedge funds - before, during and after the global financial meltdown of 2008.

He was responsible for the creation of AHL's fundamental global macro strategy and then ... Read more on Robert Carver

Contents Listing

Preface
- Systematic trading and investing
- Who should read this book
- The technical stuff
- What is coming

Introduction
- January 2009
- September 2008
- Why you should start system trading now
- It's dangerous out there
- Why you should read this book

Part One. Theory

Chapter One. The Flawed Human Brain
- Chapter overview
- Humans should be great traders, but...
- Simple trading rules
- Sticking to the plan
- Good system design

Chapter Two. Systematic Trading Rules
- Chapter overview
- What makes a good trading rule
- When trading rules don't work
- Why are certain rules profitable
- Classifying trading styles
- Achievable Sharpe ratios
- Conclusion

Part Two. Toolbox

Chapter Three. Fitting
- Chapter overview
- The perils of over-fitting
- Some rules for effective fitting
- How I choose my rules

Chapter Four. Portfolio Allocation
- Chapter overview
- Optimising gone bad
- Saving optimisation from itself
- Making weights by hand
- Incorporating Sharpe ratios

Part Three. Framework

Chapter Five. Framework Overview
- Chapter overview
- A bad example
- Why a modular framework?
- The elements of the framework

Chapter Six. Instruments
- Chapter overview
- Necessities
- Instrument choice and trading style
- Access
- Summary of instrument choice

Chapter Seven. Forecasts
- Chapter overview
- What makes a good forecast
- Discretionary trading with stop losses
- The asset allocating investor's 'no-rule' rule
- Two example systematic rules
- Adapting and creating trading rules
- Selecting trading rules and variations
- Summary of trading rules and forecasts

Chapter Eight: Combined Forecasts
- Chapter overview
- Combining with forecast weights
- Choosing the forecast weights
- Getting to 10
- Capped at 20
- Summary for combining forecasts

Chapter Nine. Volatility targeting
- Chapter overview
- The importance of risk targeting
- Setting a volatility target
- Rolling up profits and losses
- What percentage of capital per trade?
- Summary of volatility targeting

Chapter Ten. Position Sizing
- Chapter overview
- How risky is it?
- Volatility target and position risk
- From forecast to position
- Summary for position sizing

Chapter Eleven. Portfolios
- Chapter overview
- Portfolios and instrument weights
- Instrument weights - asset allocators and systems traders
- Instrument weights - semi-automatic trading
- Instrument diversification multiplier
- A portfolio of positions and trades
- Summary for creating a portfolio of trading subsystems

Chapter Twelve. Speed and Size
- Chapter overview
- Speed of trading
- Calculating the cost of trading
- Using trading costs to make design decisions
- Trading with more or less capital
- Determining overall portfolio size
- Summary of tailoring systems for costs and capital

Part Four. Practice

Chapter Thirteen. Semi-automatic Trader
- Chapter overview
- Who are you?
- Using the framework
- Process
- Trading diary

Chapter Fourteen. Asset Allocating Investor
- Chapter overview
- Who are you?
- Using the framework
- Weekly process
- Trading diary

Chapter Fifteen. Staunch Systems Trader
- Chapter overview
- Who are you?
- Using the framework
- Daily process
- Trading diary

Epilogue. What makes a good systematic trader?
Glossary

Appendices

Appendix A. Resources
- Further reading
- Sources of free data
- Brokers and platforms
- Automation and coding

Appendix B: Trading Rules
- The A and B system: Early profit taker and early loss taker
- The exponentially weighted moving average crossover (EWMAC) rule
- The carry trading rule

Appendix C. Portfolio optimisation
- More details on bootstrapping (technical)
- Rule of thumb correlations

Appendix D. Framework details
- Rescaling forecasts
- Calculation of diversification multiplier
- Calculating price volatility from historic data

Acknowledgements
Index
Preface
- Systematic trading and investing
- Who should read this book
- The technical stuff
- What is coming

Introduction
- January 2009
- September 2008
- Why you should start system trading now
- It's dangerous out there
- Why you should read this book

Part One. Theory

Chapter One. The Flawed Human Brain
- Chapter overview
- Humans should be great traders, but...
- Simple t ...

Jacket Text

This is not just another book with yet another trading system. This is a complete guide to developing your own systems to help you make and execute trading and investing decisions. It is intended for everyone who wishes to systematise their financial decision making, either completely or to some degree.

Author Robert Carver draws on financial theory, his experience managing systematic hedge fund strategies and his own in-depth research to explain why systematic trading makes sense and demonstrates how it can be done safely and profitably. Every aspect, from creating trading rules to position sizing, is thoroughly explained. The framework described here can be used with all assets, including equities, bonds, forex and commodities.

There is no magic formula that will guarantee success, but cutting out simple mistakes will improve your performance. You'll learn how to avoid common pitfalls such as over-complicating your strategy, being too optimistic about likely returns, taking excessive risks and trading too frequently.

Important features include:

- The theory behind systematic trading: why and when it works, and when it doesn't.
- Simple and effective ways to design effective strategies.
- A complete position management framework which can be adapted for your needs.
- How fully systematic traders can create or adapt trading rules to forecast prices.
- Making discretionary trading decisions within a systematic framework for position management.
- Why traditional long only investors should use systems to ensure proper diversification, and avoid costly and unnecessary portfolio churn.
- Adapting strategies depending on the cost of trading and how much capital is being used.
- Practical examples from UK, US and international markets showing how the framework can be used.

Systematic Trading is detailed, comprehensive and full of practical advice. It provides a unique new approach to system development and a must for anyone considering using systems to make some, or all, of their investment decisions.

Professional Reviews

"A remarkable look inside systematic trading never seen before, spanning the range from small to institutional traders. This isn't only for algorithmic traders, it's valuable for anyone needing a structure - which is all of us. Carver explains how to properly test, apply constant risk, size positions and portfolios, and my favorite, his "no rule" trading rule, all explained with scenarios. Reading this will benefit all traders." - Perry Kaufman, author of Trading Systems and Methods, 5th Edition (Wiley, 2013)


Media Coverage

Reading the Markets

The days of Richard Dennis and his ?turtles? with their alleged 100% per year profit are long gone, but their mystique lives on. And with it comes one attempt after the other to emulate them, to ...

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MoneyLife Radio

Robert Carver speaks to Chuck Jaffe about his new book on MoneyLife Radio.

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Top Traders Unplugged

AUDIO: Robert Carver spends most of his book telling you that he is not a good trader. So why did he devote his life and a whole book to the subject?

Because he believes in systematic trading; ...

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Top Traders Unplugged

AUDIO: In the second part of our conversation with Robert Carver, we dive into the specifics of his trading strategy, why he doesn?t trade full time, and what he thinks about the trend-following ...

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Trend Following

Today on Trend Following Radio Michael Covel interviews Robert Carver. Robert is author of ?Systematic Trading: A unique new method for designing trading and investing systems.? He got his start in ...

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