EP 052: How quant strategies are created, scrutinized and introduced to the market w/ Ernie Chan

Aaron Fifield Podcast 2 Comments


This week I had the great pleasure of speaking with Dr Ernest Chan, from Toronto (Canada). While many traders in the quantitative arena will already be familiar with Ernie, here’s a brief intro…

You could say, Ernie had somewhat of an unconventional introduction to trading โ€“ he started out on a research team at IBM, using machine learning and artificial intelligence techniques, teaching computers to understand human languages โ€“ before joining a prop trading group.

Today, Ernie has upwards of 15 years applying similar techniques to the domain of finance and trading โ€“ working with multiple prop firms and hedge funds across his career. And currently, Ernie is the managing member of QTS Capital Management.

Just to top it off, Ernie has written two books ‘Quantitative Trading’ and ‘Algorithmic Trading’, and also regularly speaks at conferences.

Some of the topics we cover during this episode are; diversification, capital allocation, generating strategy ideas, back-testing and a much more.

ernie chan interview

“If you’re multi-tasking, all you get is degraded performance in every task you do.”

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“One does not need to be a math wiz, in order to do quantitative trading.”

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Lessons learnt in this interview:

  • Ernie explains why a degree of human intuition about markets is necessary when applying machine learning and artificial intelligence techniques to financial data.
  • The reasons why Ernie trades individual strategies for each market he participates in, and how the approach of an equity strategy differs.
  • Diversification; understanding every strategy will have areas where it becomes vulnerable, and the great benefits of trading multiple strategies.
  • How Ernie thinks about capital allocation and the process of introducing new strategies (when true market impact is unknown).
  • The advantages and disadvantages for both, algorithmic trading and discretionary trading โ€“ how they compare.
  • Where Ernie sources the majority of his trade ideas, and precautions for reading/using academic research.
  • How to get started as a beginning quantitative trader; using Excel and where to go from there onwards. Plus, Ernie shares his thoughts on proprietary languages.
  • And much more…

Links and resources mentioned:

  • Quantitative Trading by Ernie Chan โ€“ This is Ernie’s first book, which is best-suited for those who would like to get started in quantitative trading, as it covers the basics.
quantitative trading ernie chan
algorithmic trading ernie chan
  • Algorithmic Trading by Ernie Chan โ€“ This is Ernie’s second book, which is more focused on strategies and techniques, and covers these topics in-depth.
  • epchan.blogspot.com โ€“ For a range of articles published by Ernie, I encourage you to visit his blog. Where he also takes the time to answer reader questions in the comments area.
  • epchan.com โ€“ To learn more about Ernie, the fund he manages, and his workshops you can visit his website here.
  • @chanep โ€“ Also, be sure to follow Ernie on Twitter.

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