269: Rob Hanna - Reducing Anxiety and Drawdowns through Quantifiable Edges
Oct 25, 2023
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Guest Rob Hanna, a discretionary trader, shares his journey of developing a system to reduce anxiety and drawdowns in trading. He discusses the importance of quantitative analysis, market bias, and the challenges faced by quants. The podcast also explores the impact of Fed Days on the stock market, analyzing indicators like RSI, and the significance of CVI readings and VIX levels. Additionally, it highlights the next steps in quant trading and emphasizes the importance of testing trading ideas.
Quantitative analysis complements discretionary trading by allowing traders to test patterns and indicators for an edge.
Consider market conditions and factors like price action and seasonality in combination with quantitative analysis for informed trading decisions.
Algorithmic trading does not eliminate the need for understanding trading psychology and mindset; confidence in the system and double-checking signals are crucial.
Deep dives
Quant Trading for Beginners
In this podcast episode, host Tessa interviews Rob Hannah, a quantitative trader with 15+ years of experience. Rob shares his journey from discretionary trading to quantitative analysis and discusses the benefits of utilizing a systematic approach. He highlights the importance of understanding technical analysis before delving into quantitative research and explains how quantitative analysis can provide an edge by testing various patterns and indicators. Rob also discusses the significance of Fed Days and shares his thoughts on the current market environment.
The Power of Quantitative Research
Rob Hannah discusses how quantitative research can complement discretionary trading strategies. He explains that quantitative analysis allows traders to test various patterns and indicators observed in technical analysis to identify strategies with an edge. Rob emphasizes that research should be used to understand market tendencies rather than finding the perfect trading system. He also shares his experience of developing models that capture market bottoms and discusses the benefits of quantitative analysis in setting market biases and managing psychological challenges.
Considerations for Fed Days
Rob Hannah provides insights into the historical performance of Fed Days and their impact on market behavior. He explains that while Fed Days have generally shown a positive expectancy, the market's direction leading up to the event can significantly influence the outcome. Rob advises paying attention to market conditions, such as sell-offs or strong moves before Fed Days, as they can affect the bullish edge associated with these events. He also discusses the importance of considering factors like price action, liquidity, and seasonality in combination with quantitative analysis to make informed trading decisions.
Understanding the Challenges of Algorithmic Trading
Algorithmic trading systems are often marketed as stress-free and easy, but the reality is that even with automation, losses still feel like losses and winning streaks can be followed by losing trades. Traders need to have a realistic understanding that trading will always have its ups and downs. It's important to have confidence in the system being used, double-check signals, and manually enter orders to ensure accuracy. Traders should avoid thinking that algorithmic trading will eliminate the need for understanding trading psychology and mindset.
Quantitative Trading and the Importance of Diversification
Quantitative and algorithmic trading are sometimes used interchangeably, with quantitative trading focusing on understanding the odds and algorithmic trading involving automated systems. Diversification is key in quant trading to reduce risk. Using a combination of uncorrelated systems and models allows for a smoother profit curve and lower drawdowns. It's essential to avoid the temptation of continuously tweaking systems and instead focus on finding complementary strategies that align with different market conditions, rather than seeking the 'holy grail' system. Backtesting is crucial for confirming the effectiveness of trading ideas and avoiding curve fitting.
The shock of his first major losing year in 2004 as a discretionary trader, propelled Rob Hanna to find quantifiable statistical advantages that would help mitigate the fluctuations in his equity curves. Knowing the dangers of curve fitting, in trying to find that ‘perfect’ system, Rob zeroed in on simpler approaches that would combine seasonality, overbought, oversold and Federal Reserve days. The result is a system that helps minimize anxiety and drawdowns while keeping him invested for the bulk of bullish moves.
Rob Hanna’s Bio:
Rob is a Registered Investment Adviser Representative for Capital Advisors 360. He has worked as a full-time market professional since 2001. Prior to joining CA360, Rob managed his own private investment fund from 2001–2019 and has also run Quantifiable Edges since 2008. Quantifiable Edges offers a subscriber letter and other services focused on quantitative market analysis. Over the years, Rob has spoken at major conferences for the Market Technicians Association (MTA), the National Association of Active Investment Managers (NAAIM), and the American Association of Professional Technical Analysts (AAPTA) among others. Rob is a 1992 graduate of the Boston College Carroll School of Management. He lives and works in Massachusetts but serves institutional and individual clients across the US and Europe. You can find Rob through Quantifiable Edges, or on X (Twitter) @QuantifiablEdgs
