002 - Validate for Yourself! The Science of Trend Following - Richard Brennan
Aug 22, 2023
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Richard Brennan, an expert in systematic trend following, discusses the application of the scientific method in economics and the complexity of trading. He emphasizes the importance of strategy creation, testing, and deployment in trend following, as well as maximizing diversification and using AI in trading projects. Additionally, he explores the use of chat GPT for selecting uncorrelated markets and building enduring strategies through algorithmic portfolio construction.
Systematic trading relies on algorithms and data analysis to inform trading decisions.
Diversification and risk management are essential in systematic trend following.
Personal validation, continuous learning, and self-reliance are crucial for success in systematic trading.
Deep dives
Quant Trading and Systematic Trading
The podcast episode discusses the advantages of systematic trading and the importance of quantitative trading. It explores the role of systematic trading in the investment landscape and highlights the benefits of using algorithms and data analysis to inform trading decisions. The episode emphasizes the need for a systematic and rules-based approach, relying on historical data and backtesting to validate trading strategies. It also touches on the significance of diversification, risk management, and the iterative process of refining and updating trading models.
Rich's Background and Trading Strategies
The episode delves into Rich's background and how he developed his trading strategies. It highlights his experience in finance and science, which influenced his approach to trading. Rich explains that he is a diversified systematic trend follower, utilizing scientific principles and models to navigate complex and unpredictable market environments. He emphasizes the importance of simplicity, risk mitigation, and the strategy of letting profits run while cutting losses. Additionally, Rich discusses the importance of diversification, with his models being applied to multiple markets and utilizing different trend following techniques.
Algorithmic Advantage and Strategy Development
The podcast discusses the use of algorithmic advantage to develop and improve trading strategies. It outlines the process of generating ideas, testing them, and ensuring they are not fit to specific data. The episode highlights the role of systematic and rules-based approaches in trend following and the importance of empirical validation in strategy development. It also mentions the use of AI and machine learning tools like Chat GPT to assist in data analysis and idea generation, while cautioning against over-optimization and curve fitting. The episode concludes by emphasizing the enduring nature of systematic trading strategies and the need for ongoing validation and refinement.
ECCM and Seeking Optimal Portfolio
The episode briefly introduces East Coast Capital Management (ECCM), a Sydney-based fund manager specializing in diversified systematic trend following. It mentions their systematic trading approach aligned with Rich's strategies. The episode also highlights the importance of portfolio construction and selection of markets for trading. It explains the systematic process used to identify uncorrelated markets, validate models, and iteratively bundle strategies into an optimal portfolio. The focus is on rigorous testing, robustness, and avoiding over-optimization in portfolio creation.
Advice for Retail Traders
The podcast offers advice for retail traders who are interested in systematic trading. It encourages individuals to continually question and test their own ideas, rather than relying solely on external sources. The importance of personal validation and learning from mistakes is emphasized. It also suggests seeking mentors and standing on the shoulders of giants to gain insights and knowledge. Lastly, the episode stresses the significance of diligence, self-reliance, and reading challenging books to achieve success in the trading journey.
