Quant book suggestion for how stock trading order book works
hi quantlabs, can you recommend any good literature or tutorials or anything that explains in detail how the order book works? So things like how trading the order book in an aggressive or passive manner works? How your order is placed in the order book depending on what you do? I basically am really interested in learning how the order book works when you interact with it as a trader of any sort.
Algorithmic Trading and DMA: An introduction to direct access trading strategies
Automate stock trading systems portfolio based on fundamental criterias?Looking to automate a portfolio of systems that would be based purelly on proprietary fundamental ratios but lack the knowhow, curentlly with IB.
Would really appreciate your inputs on my search for the above, the path would be something like:getting the fundamental datas(balance sheet, cash flow statements and income statements individual inputs) on a daily or weeklly basis, EOD is good enough, then to calculate the universe of sp500 stocks and spit out the resulting symbols that match the criterias then to rank the ones by another proprietary formula based on prop fundamental ratios and to send the market(or limit) orders to the IB broker , the stocks would be held untill in the ranking apears another candidate and would drop the old and get the new one(s)
As mentioned above it would have to be a portfolio of systems based on different criterias and rankings so it would also have to allocate capital for each system equally but some systems would hold more stocks than others.
Is it possible? How?
==I like the algorithms, actually I prefer technical criterias, but anyway if I understand , you want to create a fundamental system in order to know how to balance the portfolio ?, is Yes, you can start to searching databases like www.smartmoney.com, wich have a tool called “Map of market”, take a look,it uses a easy way to show the performance of different enterprises. There are enterprises like CMA(www.cma.com.br) with some kind of this fundamentals tool but specifically for the Brazil markets.
I am going to search my database of this Tools , I will let you know.
–Thank you but not familiar with either of the services you recommended, or how they could help to my goal. Will be waiting for your inputs.
–At least you are asking SOME of the right questions.
Specific advice would depend on your education and background. Didn’t see any listed education on your profile.
Start by getting a degree in accounting and economics (to understand the mechanics of business and finance). Then, develop an expertise doing analysis (qualitative and quantitative). Then, develop an understanding of IT development and systems principles. Then you will be in a position to START developing a computer based stock screening and trading system.
In addition to the formal educational background, it would help if you could log about 30-40 years work experience in analysis (accounting and IT development).
Finally, steal good ideas from those that have succeeded and written books about how they did it. Usually, you should be able to get at least one good idea from each book read.
==I already have the algorithms that are based purely on fundamentals and their rudimentary backtests, the rules are value based and the result of empirical studies done by people a lot smarter than me, you stated correctly that I lack IT knowhow, why would someone post these questions knowing the solution… The backtests are a bit too good to believe and would try to do a forward test of it to check its validity, the automation would take out human error so that the results would concur out of sample, or not. I never stated i’m educated and never will, that is my way of keeping the mind opened to new ideas and possibilities, altho my post may sound over enthusiastic, it is for the simple fact that I enjoy finding it’s rules. Please post your inputs on the matter and spare no leniency, I enjoy challenges and you would keep me where I want to be, deciphering.
I’m trying to be helpful with my suggestions.
The process of making money in the stock market is (and has to be) knowledge based. One uses knowledge to narrow the scope of risk assumed with an investment and within that scope to develop a reliable estimate of risk being assumed.
Accounting (and Economics) is the language of business. Mathematics (and Philosophy) is the language of science.
Your instincts about doing a value based analysis are good. After all, if value was irrelevant then what would be the point of trying to guess or rely on earnings and other financial measures. Graham and Dodd (written in the 30s originally) is the bible of the value movement although G&D valuation has been updated with significant new twists first proposed in the late 80s.
Obviously, Black Schoeles developed the standard for valuing options. They got the Nobel prize (in Economics) for their theory. Black Schoeles is still the basic standard but it has been significantly modified. About 7 years ago I did a critique of Black Schoeles to a local Atlanta options trading group. I found the operational details of their model deficient but their overall theory was sound.
A stock’s technical (price/volume) characteristics were first (to the best of my knowledge) broadly summarized by Edwards and Magee in 1966. They didn’t so much invent anything new. Their book just comprehensively brought together a variety of tech analysis methods and gave those methods (and their use) some structure (such as the concepts of support and resistance and trends).
This G&D “chart based” approach has been supplemented by a number of authors who focused more broadly on the underlying principles of technical analysis. “Charting” while still interesting and marginally useful (and its associated methods such as propounded by the MTA out of New York) has essentially been found lacking as a comprehensive technical approach. Now if you want to understand technical aspects of trading you need to have a solid mathematical and econometric background.
It should not be a shock that you need to understand the principles of IT development and systems IF you plan on using computers in your quest for making (rather than losing) money in the trading process.
THERE IS NO SUBSTITUTE in IT for experience ON TOP OF A SOLID education in this subject matter.
Obviously, nobody in their right mind would try to profitably trade in today’s market without using a computer. That would be equivalent to trying to hand write (and/or copy) the Wikipedia website (in toto) with a pencil and paper.
Why is Economics critical? Have you noticed that the same company with basically the same earnings (presumed value) will have a widely fluctuating price DEPENDING on the state of the Economy. Understanding the Economy (it’s operations and principles upon which those operations are built) is the province of Economics. In the final analysis, you care about price if you are trading stocks.
Finally, why philosophy? What aspects of philosophy?
Start with Logic (as a branch of philosophy) and the general practice of deductive reasoning. All mathematical proofs USE Logic principles and methods in their proofs. Epistemology (as another branch of philosophy) is the study of what is Truth. No matter how precise your logical process is it always helps to have that reasoning process based soundly on Truth. Ethics (another branch) is the study of what is right or correct behavior. These qualitative considerations are a critical foundation upon which sounds quantitative measures are built.
I could have added Political Science (the study of power) and Psychology (the study of the mind – mostly human). Both provide useful insights. Engineering (numerous branches) also provide us with mature and useful TOOLS to use in the process of trading.
Finally, one needs experience USING all these academic tools.
I and a friend have been working on deveoping similar strategies. We are using two approaches at the moment. Fidelity Wealth Lab Pro and Excel Spread sheets to strip data off of primarily the Yahoo financial web sites. Wealth Lab is a c# and .Net based programmable strategy that can use any available data from the web. If you are not a high level programmer you can begin using their coding rules that include a large number of fundamental indicators. For example my friend programmed a strategy that buys when the Ben Graham fundamental criteria are met and sells when any of those criteria are violated. I have written several excel spreadsheets that analyze the quarterly and yearly financial reports for each company in a stock symbol set and output the results to a table that can be sorted on any of the columns. Both of these approaches, it would seem would help you attain your goal.