Inside the Black Box: The Simple Truth About Quantitative Trading
By Rishi K. Narang
With Inside the Black Box Rishi Narang has commanded the positive attention of many respected voices in Finance, including Trading department heads at Morgan Stanley and Barclays.
Although he has a BA in Economics, Narang goes about trimming a lot of the fat that is at the heart of mathematical equations, getting straight to the ‘how’ to demonstrate how lucrative Quants can be. Rather than come from a strictly scientific place, Narang relies on the case studies from many of his peers who are actively successful in Quant trading and shares key nuggets that have worked for him and his circle.
The response to the book has allowed Narang that rare opportunity to gain plaudits from both seasoned professionals and emerging traders who are constantly seeking faster ways of digesting information. Opening the door to the curious, many of who want to begin trading alongside their job in order to dip their toes into the water; Narang has hit open an important market who would otherwise be exposed to the mistakes of a first-timer had they not had access to his guide.
The book is split up into three parts, which makes it simple for one to find exactly what they are looking for; which will be largely dependent on their previous experience of course. Each part goes deeper into detail, allowing for a well-rounded approach which is always summarised.
What to expect from each section and its respective set of chapters is clearly labelled. Here is my pick of the most insightful and useful chapters;
- Disciplined Implementation
- What is a Quant?
- What is the Typical Structure of a Quantitative Trading System?
- Types of Alpha Models: Theory-driven and Data-driven
- Implementing the Strategies
- Limiting the Amount of Risk
- How Quants Choose a Portfolio Construction Model
- Order Execution Algorithms
- High Frequency Trading: Blurring the Line between Alpha and Execution
- The Importance of Data
- Cleaning Data
- Blueprint for Research: The Scientific Method
- Idea Generation
- Risks Inherent to Quant Strategies
- How Quants Monitor Risk
- Criticisms of Quant Trading: Setting the Record Straight
- Trading is an Art, Not a Science
- Evaluating Quants and Quant Strategies
- Evaluating the Acumen of Quantitative Traders
- Looking to the Future of Quant Trading
As I’m sure many may agree, the range and specificity of these headings clearly demonstrate that Narang understands the needs of the trader/reader well. He answers pressing, key questions such as Limiting the Amount of Risk (often a primary concern) and Criticisms of Quant Trading: Setting the Record Straight. Not many books and guides on such practical frameworks will address, head-on, the complex critique that sometimes mystifies and acts as a barrier to entry within a sub-area of trading such as Quants.
The sum total of my thoughts on Inside the Black Box add up to the risk-free assertion that, whatever your current position; this is a very targeted trading companion that answers a lot of questions and would be a valuable addition to any of your book shelves.
By Andrea Photiou