Light reading for those with an interest in quant trading

books:

	• The Predictors: How a Band of Maverick Physicists Used Chaos Theory to Trade Their Way to a Fortune on Wall ... Thomas A. Bass Holt Paperbacks, 2000 - 320 pages average customer review:based on 39 reviews view larger image
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Valuable to a niche group

To quote: "They begin an animated discussion about some of the basic ideas that will later be used at Prediction Company. The technique involves fitting functions to time series. Imagine a stream of data, a record of daily sunspot activity, for example. The sunspot activity on two successive days is two numbers, which can be represented as points in a plane. The sunspot activity on the next day can be thought of as a point suspended above this plane. The picture of sunspot activity for a year will be a cloud of points in three dimensional space. To make a forecasting model, one fits a surface, like a rumpled sheet, through this cloud of data. If the sheet fits in close proximity to all the data points, it will be a good model. Forecasts are made by stretching the sheet into regions where additional data points will be recorded when the future rolls into the present". The idea is in the air... This description is recognisable to someone who has independently arrived at something similar -- but probably not informative to the rest. Here at we would not entrust an extrapolation of an analytical fit (no matter how non-linear) with anybody's money -- what you want to do is data compression of some sort, and there are more conservative compression tools than a fit. One may also object to the business model of striking an exclusive deal with a single large client, as opposed to marketing the service to thousands of individual traders. Overall, valuable historic reading to someone with similar interests.

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Required Reading Before Trying to 'Beat the Market'

With over 80,000,000 Americans investing in the stock market, many believe that they can quickly and easily go in and 'out-think' all those other traders who "just aren't as smart as I am." Well, before you go in and compete against the big boys, you might want to read this book to get a good understanding of who and what you are competing against.

There is an old saying that goes "It doesn't take a rocket scientist to figure this out." Yeah, well, maybe not. But, when you try to outwit the market, you better realize that you are competing against rocket scientists, and physicists, and mathematicians who attack the market in ways the average investor can't even comprehend. Yet, that is who you compete against in the market.

This book tells the story of a group of physicists and their friends who set out to build an automated trading system that would rule the market. Did they succeed? Well, I wouldn't want to give away the ending. But, needless to say, before you jump into the stock market and get your ego and pocketbook devastated, you might want to read about how difficult it is to 'rule the market' even when you have some of the best brains in the US tackling the problem with resources that you and I will never have.

This book should be required reading before a person can invest in the stock market.

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Light reading for those with an interest in quant trading

I read this book as part of research into quantitative trading hedge funds in order to get some insight into a group of early players. The book is actually quite well written (obviously devoid of any useful information for easily building your own models!) and highlights both the personal and practical elements of starting a hedge fund with little prior financial experience but with an idea (that has been shown to be quite lucrative if not failsafe in a post 8/07 world).
A fun book that is also useful for understanding some of the issues and history of quant trading. Prediction Company still exists, though without any of the colorful founders, and has spun off some interesting hedge funds.

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reviews: page 1, 2, 3, 4, 5, 6, 7, 8

Excerpted in The New Yorker and hailed by the business press, The Predictors is destined to become a classic of its generation--an antic, subversive odyssey into a universe defined by the mystical convergence of physics and finance.

How could a couple of rumpled physicists in sandals and Eat-the-Rich T-shirts, piling computers into an adobe house in Santa Fe, hope to take on the masters of the universe from Morgan Stanley? Doyne Farmer and Norman Packard may never have read The Wall Street Journal, but they happen to be among the founders of the new sciences of chaos and complexity. Who better to try to find order in the apparently unreasoned chaos of the global financial markets? Thomas A. Bass takes us inside their start-up company, following it from its inception as a motley collection of longhaired Ph.D.s to its passage into the centers of financial power, where "the predictors" find investors and finally go live with real money. The Predictors is a dizzying, often hilarious tale of genius and greed.

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