A unique new method for designing trading and investing systems. By Robert Carver.
About the book
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.
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.
"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
"The days of Richard Dennis and his “turtles” with their alleged 100% per year profit are long gone, but their mystique lives on... Robert Carver is more modest—and more realistic. At the same time he has more to offer the investor or trader who has a spark of creativity and intellectual curiosity. Systematic Trading is a thoughtful, and thought-provoking, journey through the process of creating modular rule-based portfolios.... (Carver) isn’t just some ordinary Joe with a computer and a bunch of back-testing software. He has clearly thought about what makes a good systematic trader and a good systematically-driven portfolio. We can be grateful that he decided to share his insights with us. "
Brenda Jubin, Reading the markets. Full review
Solid book on real systematic trading. Rob goes into a level of depth which most trading book authors either deliberately avoids or simply lack knowledge of. Rob's background in the industry is beyond reproach and the informational contents of his book shows his experience and depth of knowledge. It is rare with authors willing to take the time to explain at this level... If you want to enter the professional systematic trading field, Rob's book is a must.
Andreas Clenow. CIO Acies Asset Management and author of Following The Trend. Full review
Being a hedge fund manager myself and having personally read almost all major investment and trading books, this is by far one of the best books I have read in over 15 years on a tough subject for most. It should be required reading...for anyone trying to just invest their money let alone trade.
Josh Hawes, Hedge fund manager Full review
There are many books on trading. However, very few deal with answering the practicalities, which very often you have to learn from years of experience when trading. This book does answer many of those practical questions! .... Robert had very valuable experience working for many years in a large quant hedge fund, which makes the book doubly worth reading.... Well worth a read for anyone who trades, in particular for systematic traders (whether you're a novice or more experienced)!
Saeed Amen, author of Trading Thalesians Full review
Rob Carver is a seasoned professional investment manager and this book will give you the benefit of his experience. The key strength of the book is to show you how to put together a portfolio of quantitative trading strategies without losing your shirt. ... The book motivates well, using ideas from behavioural finance, why it is that trading strategies can be profitable year in year out. The author has some nice anecdotes to tell on this.... this is an excellent book and a good buy for anyone interested in quantitative trading.
Steve Bell, author of Quantitative Finance for Dummies Full review
"In summary, investors will likely find Systematic Trading a rational and practical approach to building diversified, risk-managed investment/trading portfolios. The book offers quantified examples throughout."
CXO advisor. Full review
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.
From Amazon reviews
One of the best trading books of all time
Absolutely the best book I've read to date.
I can't recommend it enough.
This book is a must read for anyone aiming to design, test and maintain a systematic trading system.
The best thing on systematic trading I've read so far
This book is a must read both for beginners and professional trader
... has some of the best ideas I have read.
I've gone through it 3-4 times now and I'm still uncovering new ideas and information
There aren't many trading books that live up to their promise, but Systematic Trading does so, in spades.
Robert's realistic take on what is achievable and focus on diversification across instruments and trading rules is refreshing.
There are some serious gold nuggets in here
Individuals who are serious... will find this book to be a complete guide to the subject matter with unique insights of the author
This book does an excellent job of laying out a compartmentalized approach to building a systematic money management overlay for a quantitative trading system.
… this book is the most detailed manuscript that I have come across in regards to constructing a trading system based on a volatility targeting position sizing method
This is an amazing book that gives a thorough overview of constructing a trading system together with position sizing and risk management.
After reading this book even the amateur home trader has some chance of surviving in the markets.
Well worth a read for anyone who trades, in particular for systematic traders (whether you're a novice or more experienced)!
Who should read this book
Everyone who wishes to systematize their financial decision making, either completely or to some degree.
All traders and investors:
Discretionary traders who want to use systematic position management
Traditional long only investors
Fully systematic traders who use rules to predict prices
Suitable for both amateurs and professionals
Can be used to trade in any country or asset class
Examples include spread bets, exchange traded funds and futures
In the equity, bond, FX and commodity markets
Semi automatic traders
Semi-automatic traders think they are superior to simple rules when it comes to forecasting by how much prices will go up or down; instead they make their own educated guesses. However they would like to place those bets inside a systematic framework which will ensure their positions and risk are properly managed. This frees them up to spend more time making the right call on the market.
Asset allocating investors
An asset allocating investor allocates funds amongst, and within, different asset classes. Asset allocators can use systematic methods to avoid the short-term chasing of fads and fashions that they know will reduce their returns. Asset allocators are skeptical about those who claim to get extra returns from predicting prices. For this reason the basic asset allocation example assumes you can’t forecast how asset prices will perform. However some investors might want to incorporate their views, or the views of others. I show you how to achieve this without over-trading or ending up with an extreme portfolio.
Staunch systematic traders
The staunch systems trader is a true believer in the benefits of fully systematic trading, and they embrace the use of systematic trading rules to forecast price changes. Many system traders think they can find trading rules that give them extra profits, or 'alpha'. Others are unconvinced they have any special skill but believe there are additional returns available which can’t be captured just by ‘buy and hold’ investing. They can use very simple rules to capture these sources of alternative beta.
From the introduction...
I am very bad at making financial decisions. Like most people I find it difficult to manage my investments without becoming emotional and behaving irrationally. This is deeply irritating as I consider myself to be very knowledgeable about finance. I’ve voraciously read the academic literature, done my own detailed research, spent 20 years investing my own money and nearly a decade managing funds for large institutions.
So in theory I know what I’m doing. In practice when faced with a decision to buy or sell a stock things go wrong. Fear and greed wash through my mind, clouding my judgment. Even if I’ve spent weeks researching a company it’s still hard to click the trade button on my broker’s website. I have to stop myself buying or selling on a whim, based on nothing more than random newspaper articles or an anonymous blogger’s opinion. But then, like you, I’m only human.
Fortunately there is a solution. The answer is to fully, or partly, systematize your financial decision making. Creating a trading system removes the emotion and makes it easier to commit to a consistent strategy.
I spent many years managing a large portfolio of trading strategies for a systematic hedge fund. Unfortunately I didn’t have the opportunity to develop and trade systems to look after my personal portfolio. But after leaving the industry I’ve been able to make my own trading process entirely systematic, resulting in significantly better performance.
There are many authors and websites offering trading systems. But many of these ‘systems’ require subjective interpretation, so they are not actually systematic. Some are even downright dangerous, trading too quickly and expensively, and in excessive size. They present you with a single ‘one size fits all’ system which won’t suit everybody. I will explain how to develop your own trading system, for your own needs, and which should not be excessively dangerous or costly to operate.
I’ve found systematic investing to be more profitable, and to require less time and effort. This book should help you to reap similar benefits.
Running a systematic strategy is just like following any list of instructions, such as a recipe. Many books on trading are like fast food outlets which give you something quick and convenient to eat from a limited menu. However I am going to help you create your own strategies; this is more than just a cookbook, but a guide to writing recipes from scratch.
To create your own recipes requires an understanding of the science of food chemistry and of different kinds of dishes. Similarly, part one of this book –
‘Theory’ – provides a theoretical basis for why you should run systematic strategies and gives an overview of the trading styles that are available.
Part two – ‘Toolbox’ – provides you with two key methods used in the creation of systematic strategies: back-testing and portfolio optimisation. Like sharp kitchen knives these are powerful tools, but also potentially dangerous. When misused large trading losses can be made despite apparently promising ideas. I will show you how to use them properly – and when you don’t need them.
Part three – 'Framework' – provides a complete and extendable framework for the creation of systematic strategies. Finally in part four – 'Practice' – I show three different uses of the framework in action. I illustrate how it can be adapted for each of the semi-automatic trader, asset allocating investor and staunch systems trader.
Part one: Theory
Chapter 1: The flawed human brain
Chapter 2: Systematic Trading Rules
Part two: Toolbox
Chapter 3: Fitting
Chapter 4: Portfolio Allocation
Part three: Framework
Chapter 5: Framework Overview
Chapter 6: Instruments
Chapter 7: Forecasts
Chapter 8: Combined forecasts
Chapter 9: Volatility targeting
Chapter 10: Position sizing
Chapter 11: Portfolios
Chapter 12: Speed and Size
Part four: Practice
Chapter 13: Semi automatic trader
Chapter 14: Asset allocating investor
Chapter 15: Staunch systems trader
Appendix A: Resources
Appendix B: Trading Rules
Appendix C: Portfolio optimisation
Appendix D: Framework details
About the Author
Robert Carver is an independent investor, trader and writer. He spent over a decade working in the City of London before retiring from the industry in 2013. Robert initially traded exotic derivative products for Barclays Investment Bank and then worked as a portfolio manager for AHL – one of the world’s largest 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 managed the fund’s multi-billion dollar fixed income portfolio.
Robert has Bachelors and Masters degrees in Economics, and is currently a visiting lecturer at Queen Mary, University of London. Robert manages his own portfolio of equities, funds and futures using the methods you can find in his books.