I knew this was coming. Posting a link to my previous blog entry in a quants forum sparked a heated debate. See what very intelligent people has to say about the merits of quantitative analysis and technical analysis. Some even pointed out that TA has more realistic models than QA.
Link to the QA vs. TA thread
Tags: quant technical analysis wilmott
Branding Quantitative Analysis as "Technical Analysis" will probably bring in some violent reactions from quants. But I just want to point out the similarities that they share. In fact, it can be seen that Quantitative Analysis is a higher form of Technical Analysis.
Technical Analysis is commonly described as Charting. It is the study of charts (graphical representation of past price movements) and finding patterns in them. Investment decisions are then based on these patterns. People say this is superstition as price moves randomly and just forms these patterns by chance. Technical analysis also utilize quantitative techniques via Technical Indicators. Technical Indicators aren't just numbers, they are results of some statistical modelling. Indicators like MACD and Bollinger Bands are actually similar to statistical measures used by quants today (mean and standard deviation respectively). These measures are used for momentum and mean reversion strategies. Technical analysis also looks into other quantifiable variables found in the market like traded volume, open interest, bid ask spreads, etc. Technical analysis gives rise to automatic trading rules which is also done with quantitative analysis.
In the Jan/Feb 2007 Issue of CFA Magazine, there is an article ("Perpetual Motion by Susan Trammell, CFA") about a recent study on trends in quantitative investing. Below are some findings:
Phenomena Being Modeled:
I'm somewhat amazed on how I got myself into the world of Financial Derivatives. I do not have a quantitative degree (I majored in Management Economics) and didn't pay much attention to my math and statistics classes in college. Yet I find financial markets (derivatives in particular) fascinating. And becoming knowledgeable in them actually gave me an edge in the industry.
Looking back, it seems that I chose the wrong college course. But my interest in the subject matter and the willingness to learn did not stop me from attaining my goal. Although not for quants, the CFA program gave me a good background on the financial markets in general; as well as valuation methods for plain vanilla derivatives.
I searched the net for papers. Marketing and research papers published by the big banks are of great help. Sites like DefaultRisk has loads of papers on Risk Management and Derivatives. But reading them is no simple feat as most of them are written by PhDs or PhD students. My lack of academic foundation in mathematics do get in the way, especially when I encounter a lot of greek symbols.
Finding like-minded individuals to discuss topics of interests and ask for advice also did a lot of good. I am an active member of Wilmott -- an online community of quants (Username: Jomni). At first, I was the one asking questions, and now I give answers and advice myself (on topics that are not mathematically deep).
I never stop reading. Part II of the PRMIA Professional Risk Managers' Handbook is a good refresher on quantitative finance topics. It covers Matrix Algebra, Differential and Integral Calculus, Probability, and Statistics. Other good books would be Hull's Options, Futures and Other Derivatives and Paul Wilmott on Quantitative Finance.
Tags: derivatives finance math quant books cfa
