PART ONE
STRUCTURAL FOUNDATIONS FOR IMPROVING TECHNICAL
TRADING PERFORMANCE 1
Chapter 1
Introduction to Quantitative Trading: How Statistics Can Help Achieve
Trading Success 3
Trading Strategies and the Scientific Method 3
The Origins of This Book 5
New Markets and Methods of Trading 6
The Scientific Bent and Quantitative Trading 6
The Pioneers of Quantitative Trading: W. D. Gann, Richard Donchian,
Welles Wilder, Thomas DeMark 9
The Recent Explosion of Quantitative Trading 10
Today’s Quantitative Traders: Monroe Trout, John Henry, Ken Griffen,
Jim Simons 11
Why Quantitative Trading Is Successful 14
Birth of a New Discipline 21
Technology and Inefficiencies in Financial Markets 30
Merits and Limitations of Fundamental Analysis 33
Chapter 2
An Introduction to Statistics: Using Scientific Methods to Develop Cutting
Edge Trading Strategies 39
Measuring the Markets Using Statistics 39
Mean and Average of Returns and Prices 40
Measuring the Dispersion of Returns 40
Correlation 42
The Usefulness of the Normal Distribution 46
The Irregularity of Market Volatility 49
The Range of Volatilities 50
The Lognormality of Market Prices 53
......
Chapter 12
Solving the Trading Puzzle: Creating, Testing, and Evaluating a New
Trading Strategy 321
Creating the Strategy 321
Testing the New Strategy 324
Determining Optimal Leverage 325