Machine learning enhances existing trading edges, not as a standalone advantage.
Trade structuring and management are crucial for sustainable alpha generation in trading.
Deep dives
Evolution of Investment Strategies with Machine Learning
Machine learning, as discussed in the podcast, is not viewed as an edge in itself but rather an enhancer of existing edges developed by traders. By utilizing natural language processing, traders can extract signals from news faster, process complexity differently, and ultimately analyze real-time data leading to higher hit rates in idea generation and trading. However, it is emphasized that the use of machine learning presents challenges such as data quality and infrastructure issues, and should be approached cautiously due to the complexities it introduces.
The Importance of Trade Structuring and Management for Traders
The podcast emphasizes the significance of trade structuring and ongoing management as a source of alpha that is often overlooked in trading circles. The distinction between being a trader and an investor lies in how trade size is managed over the trade's duration. Strategies with higher risk-reward ratios are highlighted as more sustainable in generating long-term returns compared to high hit rate strategies. Traders are advised to focus on improving risk-reward ratios for sustainable returns, emphasizing the importance of trade expression and structure over directional bets on asset price movements.
There is no doubt that the tools of machine learning and the promise of artificial intelligence has captured the imagination of quantitative researchers everywhere. But I am aware of few fund managers who have wholesale adopted the ideas into their investment stack as thoroughly as Angus Cameron.
In this dive back into the archives, we return to Season 4, Episode 6 where I spoke with Angus about his background as a discretionary macro trader and his evolution into a fully systematic, machine-learning driven investment stack. Not just in how signal is identified, but in how trades are structured and managed.
If the idea of a swarm of AI trading bots doesn’t get you excited, this might not be the episode… or the podcast… for you!
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