5 Meaningful Books for Newcomers Important for Algorithmic Trading, Read Now!

Algorithmic trading is generally considered a complex area for newcomers to understand. It covers a wide variety of disciplines, with particular areas requiring an important level of mathematical and statistical maturity. The ending can be very off-putting for the uninitiated. In fact, the design of the totality is easy to understand, while the details can be studied over and over again.

The beauty of algorithmic trading is that there is no need to try out insights about real capital, as many agents provide very realistic market simulators. While there are specific caveats associated with such systems, they provide a place to press for a level of in-depth explanation, with no risk of capital at all.

A common question I get from QuantStart readers is "How do I get started with quantitative trading?". I've written a newcomer's guide to quantitative trading, but one post can't aim to cover peace of mind. So I've finished proposing my favorite entry-level quant trading novel in this post.

The initial task is to get a hard reflection on the points. I've made it much easier to stay away from heavy math dialogue until the basics are covered and understood. The best books I have come across for this purpose are the following:

1) Quantitative Trading by Ernest Chan 

This is one of my favorite financial novels. Doctor. Chan provides a good overview of how to setup a "retail" quantitative trading system, using MatLab or Excel. He makes points very accessible and gives the opinion that "anyone can do it". While a lot of detail is skipped (mainly for brevity), this novel is a good introduction to algorithmic trading methods. It covers alpha generation ("trading forms"), risk management, automated execution systems and specific strategies (especially momentum and returns in general). This novel is a place to start.

2) Inside the Black Box by Rishi K. Narang

In this novel Doctor. Narang explains in detail how reliable quantitative hedge funds work. This is for smart investors who are contemplating whether to invest in such a "dark box". Although it may seem irrelevant to the hawker, this novel actually contains a lot of data on how the "fit" quant trading system should be tried. For example, the meaning of business payments and risk management is described, with thoughts on where to look for further data. Many hawkers trading algo can do well to quote this and see how reliable it is to carry out their trade.

3) Algorithmic Trading& DMA by Barry Johnson

 The term algorithmic trading, in financial manufacturing, generally refers to the execution algorithms used by banks and agents to execute efficient trades. I use the term to cover not only the trading aspect, but also quantitative or analytical trading. This novel is primarily about the original, written by Barry Johnson, who is a quantitative software developer at a capital bank. Does this mean there is no benefit to retail quantities? Not very similar. Having a more in-depth description of how change works and "micromarketing" can go a long way towards the profitability of a retail strategy. Even though it's a heavy, thick novel, it's well worth it.

Once the bottom plan is understood, it is necessary to start improving the trading strategy. This is commonly known as the alpha form part of the trading system. Strategies are easy to find these days, but the real numbers come in determining your own trading benchmarks through encyclopedic research and backtesting. The following books cover several types of trading systems and their execution and how to apply them:

4) Algorithmic Trading by Ernest Chan

 This is the second novel by Doctor. Chan. In the early novels he eschews momentum, retrogression in general and special big wave strategies. This novel explores this strategy in depth and shares important application details, albeit with more mathematical complexity than the original ones (eg Kalman Filter, Stationarity or Cointegration, CADF, and others). The strategy, again, is to use MatLab in an encyclopedic way but the code can easily be modified to C++, Python or pandas or R for those with programming experience. It also provides an update on current market attitudes, as the early novels were written several years later.

5) Trading and Exchanges by Larry Harris

 This book concentrates on the micro form of the market, which for me individually is the b . zonemeaning to learn, especially in the early stages of quant trading. Micromarketing is the “science” of how market players relate and the passions involved in instruction books. This is closely related to how the changes work and what actually happens when the trade is placed. This novel is less about such trading strategies, but more about the circumstances that must be considered when conceptualizing an execution system. Many experts in quant finance think this to be an excellent novel and I highly recommend it.

At this point, as a hawker, you'll be in a good place to start studying other parts of the trading system such as execution methods (and their deep relationship to business payouts), and risk and portfolio management. I will review the novel for this point in the next post.

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