Professional Automated Trading -- Contents -- Preface -- CHAPTER 1 Introduction to Systematic Trading -- 1.1 Definition of Systematic Trading -- 1.2 Philosophy of Trading -- 1.2.1 Lessons from the Market -- 1.2.2 Mechanism vs. Organism -- 1.2.3 The Edge of Complexity -- 1.2.4 Is Systematic Trading Reductionistic? -- 1.2.5 Reaction vs. Proaction -- 1.2.6 Arbitrage? -- 1.2.7 Two Viable Paths -- 1.3 The Business of Trading -- 1.3.1 Profitability and Track Record -- 1.3.2 The Product and Its Design -- 1.3.3 The Trading Factory -- 1.3.4 Marketing and Distribution -- 1.3.5 Capital, Costs, and Critical Mass -- 1.4 Psychology and Emotions -- 1.4.1 Ups and Downs -- 1.4.2 Peer Pressure and the Blame Game -- 1.4.3 Trust: Continuity of Quality -- 1.4.4 Learning from Each Other -- 1.5 From Candlesticks in Kyoto to FPGAs in Chicago -- PART ONE Strategy Design and Testing -- CHAPTER 2 A New Socioeconomic Paradigm -- 2.1 Financial Theory vs. Market Reality -- 2.1.1 Adaptive Reactions vs. Rigid Anticipations -- 2.1.2 Accumulation vs. Divestment Games -- 2.1.3 Phase Transitions under Leverage -- 2.1.4 Derivatives: New Risks Do Not Project onto Old Hedges -- 2.1.5 Socio-Political Dynamics and Feedbacks -- 2.2 The Market Is a Complex Adaptive System -- 2.2.1 Emergence -- 2.2.2 Intelligence Is Not Always Necessary -- 2.2.3 The Need to Adapt -- 2.3 Origins of Robotics and Artificial Life -- CHAPTER 3 Analogies between Systematic Trading and Robotics -- 3.1 Models and Robots -- 3.2 The Trading Robot -- 3.3 Finite-State-Machine Representation of the Control System -- CHAPTER 4 Implementation of Strategies as Distributed Agents -- 4.1 Trading Agent -- 4.2 Events -- 4.3 Consuming Events -- 4.4 Updating Agents -- 4.5 Defining FSM Agents -- 4.6 Implementing a Strategy -- CHAPTER 5 Inter-Agent Communications -- 5.1 Handling Communication Events.

5.2 Emitting Messages and Running Simulations -- 5.3 Implementation Example -- CHAPTER 6 Data Representation Techniques -- 6.1 Data Relevance and Filtering of Information -- 6.2 Price and Order Book Updates -- 6.2.1 Elementary Price Events -- 6.2.2 Order Book Data -- 6.2.3 Tick Data: The Finest Grain -- 6.3 Sampling: Clock Time vs. Event Time -- 6.4 Compression -- 6.4.1 Slicing Time into Bars and Candles -- 6.4.2 Slicing Price into Boxes -- 6.4.3 Market Distributions -- 6.5 Representation -- 6.5.1 Charts and Technical Analysis -- 6.5.2 Translating Patterns into Symbols -- 6.5.3 Translating News into Numbers -- 6.5.4 Psychology of Data and Alerts -- CHAPTER 7 Basic Trading Strategies -- 7.1 Trend-Following -- 7.1.1 Channel Breakout -- 7.1.2 Moving Averages -- 7.1.3 Swing Breakout -- 7.2 Acceleration -- 7.2.1 Trend Asymmetry -- 7.2.2 The Shadow Index -- 7.2.3 Trading Acceleration -- 7.3 Mean-Reversion -- 7.3.1 Swing Reversal -- 7.3.2 Range Projection -- 7.4 Intraday Patterns -- 7.4.1 Openings -- 7.4.2 Seasonality of Volatility -- 7.5 News-Driven Strategies -- 7.5.1 Expectations vs. Reality -- 7.5.2 Ontology-Driven Strategies -- CHAPTER 8 Architecture for Market-Making -- 8.1 Traditional Market-Making: The Specialists -- 8.2 Conditional Market-Making: Open Outcry -- 8.3 Electronic Market-Making -- 8.4 Mixed Market-Making Model -- 8.5 An Architecture for a Market-Making Desk -- CHAPTER 9 Combining Strategies into Portfolios -- 9.1 Aggregate Agents -- 9.2 Optimal Portfolios -- 9.3 Risk-Management of a Portfolio of Models -- CHAPTER 10 Simulating Agent-Based Strategies -- 10.1 The Simulation Problem -- 10.2 Modeling the Order Management System -- 10.2.1 Orders and Algorithms -- 10.2.2 Simulating Slippage -- 10.2.3 Simulating Order Placement -- 10.2.4 Simulating Order Execution -- 10.2.5 A Model for the OMS -- 10.2.6 Operating the OMS.

10.3 Running Simulations -- 10.3.1 Setting Up a Back Test -- 10.3.2 Setting Up a Forward Test -- 10.4 Analysis of Results -- 10.4.1 Continuous Statistics -- 10.4.2 Per-Trade Statistics -- 10.4.3 Parameter Search and Optimization -- 10.5 Degrees of Over-Fitting -- PART TWO Evolving Strategies -- CHAPTER 11 Strategies for Adaptation -- 11.1 Avenues for Adaptations -- 11.2 The Cybernetics of Trading -- CHAPTER 12 Feedback and Control -- 12.1 Looking at Markets through Models -- 12.1.1 Internal World -- 12.1.2 Strategies as Generalized Filters -- 12.1.3 Implicit Market Regimes -- 12.1.4 Persistence of Regimes -- 12.2 Fitness Feedback Control -- 12.2.1 Measures of Fitness -- 12.3 Robustness of Strategies -- 12.4 Efficiency of Control -- 12.4.1 Triggering Control -- 12.4.2 Measuring Efficiency of Control -- 12.4.3 Test Results -- 12.4.4 Optimizing Control Parameters -- CHAPTER 13 Simple Swarm Systems -- 13.1 Switching Strategies -- 13.1.1 Switching between Regimes -- 13.1.2 Switching within the Same Regime -- 13.1.3 Mechanics of Switching and Transaction Costs -- 13.2 Strategy Neighborhoods -- 13.3 Choice of a Simple Individual from a Population -- 13.4 Additive Swarm System -- 13.4.1 Example of an Additive Swarm -- 13.5 Maximizing Swarm System -- 13.5.1 Example of a Maximizing Swarm -- 13.6 Global Performance Feedback Control -- CHAPTER 14 Implementing Swarm Systems -- 14.1 Setting Up the Swarm Strategy Set -- 14.2 Running the Swarm -- CHAPTER 15 Swarm Systems with Learning -- 15.1 Reinforcement Learning -- 15.2 Swarm Efficiency -- 15.3 Behavior Exploitation by the Swarm -- 15.4 Exploring New Behaviors -- 15.5 Lamark among the Machines -- PART THREE Optimizing Execution -- CHAPTER 16 Analysis of Trading Costs -- 16.1 No Free Lunch -- 16.2 Slippage -- 16.3 Intraday Seasonality of Liquidity -- 16.4 Models of Market Impact -- 16.4.1 Reaction to Aggression.

16.4.2 Limits to Openness -- CHAPTER 17 Estimating Algorithmic Execution Tools -- 17.1 Basic Algorithmic Execution Tools -- 17.2 Estimation of Algorithmic Execution Methodologies -- 17.2.1 A Simulation Engine for Algos -- 17.2.2 Using Execution Algo Results in Model Estimation -- 17.2.3 Joint Testing of Models and Algos -- PART FOUR Practical Implementation -- CHAPTER 18 Overview of a Scalable Architecture -- 18.1 ECNs and Translation -- 18.2 Aggregation and Disaggregation -- 18.3 Order Management -- 18.4 Controls -- 18.5 Decisions -- 18.6 Middle and Back Office -- 18.7 Recovery -- CHAPTER 19 Principal Design Patterns -- 19.1 Language-Agnostic Domain Model -- 19.2 Solving Tasks in Adapted Languages -- 19.3 Communicating between Components -- 19.3.1 Messaging Bus -- 19.3.2 Remote Procedure Calls -- 19.4 Distributed Computing and Modularity -- 19.5 Parallel Processing -- 19.6 Garbage Collection and Memory Control -- CHAPTER 20 Data Persistence -- 20.1 Business-Critical Data -- 20.2 Object Persistence and Cached Memory -- 20.3 Databases and Their Usage -- CHAPTER 21 Fault Tolerance and Recovery Mechanisms -- 21.1 Situations of Stress -- 21.1.1 Communication Breakdown -- 21.1.2 External Systems Breakdown -- 21.1.3 Trades Busted at the ECN Level -- 21.1.4 Give-Up Errors Causing Credit Line Problems -- 21.1.5 Internal Systems Breakdown -- 21.1.6 Planned Maintenance and Upgrades -- 21.2 A Jam of Logs Is Better Than a Logjam of Errors -- 21.3 Virtual Machine and Network Monitoring -- CHAPTER 22 Computational Efficiency -- 22.1 CPU Spikes -- 22.2 Recursive Computation of Model Signals and Performance -- 22.3 Numeric Efficiency -- CHAPTER 23 Connectivity to Electronic Commerce Networks -- 23.1 Adaptors -- 23.2 The Translation Layer -- 23.2.1 Orders: FIX -- 23.2.2 Specific ECNs -- 23.2.3 Price Sources: FAST -- 23.3 Dealing with Latency.

23.3.1 External Constraints and Co-Location -- 23.3.2 Avoid Being Short the Latency Option -- 23.3.3 Synchronization under Constraints -- 23.3.4 Improving Internal Latency -- CHAPTER 24 The Aggregation and Disaggregation Layer -- 24.1 Quotes Filtering and Book Aggregation -- 24.1.1 Filtering Quotes -- 24.1.2 Synthetic Order Book -- 24.2 Orders Aggregation and Fills Disaggregation -- 24.2.1 Aggregating Positions and Orders -- 24.2.2 Fills Disaggregation -- 24.2.3 Book Transfers and Middle Office -- CHAPTER 25 The OMS Layer -- 25.1 Order Management as a Recursive Controller -- 25.1.1 Management of Positions -- 25.1.2 Management of Resting Orders -- 25.1.3 Algorithmic Orders -- 25.2 Control under Stress -- 25.3 Designing a Flexible OMS -- CHAPTER 26 The Human Control Layer -- 26.1 Dashboard and Smart Scheduler -- 26.1.1 Parameter Control -- 26.1.2 Scheduled Flattening of Exposure -- 26.2 Manual Orders Aggregator -- 26.2.1 Representing a Trader by an Agent -- 26.2.2 Writing a Trading Screen -- 26.2.3 Monitoring Aggregated Streams -- 26.3 Position and P & L Monitor -- 26.3.1 Real-Time Exposure Monitor -- 26.3.2 Displaying Equity Curves -- 26.3.3 Online Trade Statistics and Fitnesses -- 26.3.4 Trades Visualization Module -- CHAPTER 27 The Risk Management Layer -- 27.1 Risky Business -- 27.2 Automated Risk Management -- 27.3 Manual Risk Control and the Panic Button -- CHAPTER 28 The Core Engine Layer -- 28.1 Architecture -- 28.2 Simulation and Recovery -- CHAPTER 29 Some Practical Implementation Aspects -- 29.1 Architecture for Build and Patch Releases -- 29.1.1 Testing of Code before a Release -- 29.1.2 Versioning of Code and Builds -- 29.1.3 Persistence of State during Version Releases -- 29.2 Hardware Considerations -- 29.2.1 Bottleneck Analysis -- 29.2.2 The Edge of Technology -- Appendix Auxiliary LISP Functions -- Bibliography -- Index.