Brain Teaser You're playing a game of Russian Roulette with Robb Stark. Robb takes a revolver with 6 chambers and loads 2 bullets into adjacent chambers.

Brain Teaser

You're playing a game of Russian Roulette with Robb Stark. Robb takes a revolver with 6 chambers and loads 2 bullets into adjacent chambers. He points the gun at his head, and pulls the trigger, but no shot is fired. Do you roll the cylinder again or not? If the two bullets were loaded randomly (not necessarily in adjacent chambers), do you roll the cylinder?

Question

Brain Teaser

• Don’t spin again for adjacent• Do spin again for random

Ans

Market Update

• NFPs: +204k (exp. 120k), but participation way down

• ECB cuts rates to 0.25%, says it’s ready for negative too

• US GDP +2.8% yoy (exp. +2.0%)• Twitter IPO’s without a hitch; feature or

bug?• Japan Current Account: +587bn JPY (exp.

162bn JPY)• UK Services PMI: 62.5 (exp. 59.8)

Week in Review

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J.P. MORGAN SALES & TRADING PANELJoin QFS as we welcome the J.P. Morgan Sales & Trading group. Have a chance to hear a moderated discussion amongst six J.P. Morgan panelists who come from a variety of different fields. This will be a great opportunity to network with professionals and hear what it's like to work in S&T. All classes (Freshman included) are encouraged to come.

Date: Wednesday, November 13, 2013Time: 7:00 pm Location: KMEC 1-70

THE QUANTITATIVE FINANCE SOCIETY PRESENTS: 

GUEST SPEAKER:

ROBERT ENGLE

THURSDAY, NOVEMBER 14, 2013 UC 04 AT 12:30PM

Join QFS as we host Nobel Prize winner Professor Robert Engle. This is a great opportunity to gain insights from the man who changed the way we look at and

analyze volatility.

Quantitative Finance SocietyMultistrategy / Technicals

Trading Styles“All I do in win, win, win”

• Value/Growth• Macro• Event-Driven • Technical / Structural

Trading• Quantitative (Modeling)• Market Making (Sell

Side, Prop Shop)– High Frequency Trading

Sourcing Ideas“Imitation is the best form of flattery”

• Bottoms Up– Seeking Alpha/Value Investor

Club/Sumzero/(you get the point)– Screening (www.finviz.com,

Bloomberg)– Look at companies that make

stuff you like a la Peter Lynch

• Top Down– Macro

• Know what trends are happening in the world

• A lot of relative value

• News (Event-Driven)

Why Things Get Cheap

• Structural/Flow reasons– Liquidity issues (2008)

• Inefficient markets– Mostly having to do

with options and futures

• Misunderstood stories– Earnings releases– General mispricing

Cheap is goooood

“Flow” considerations

• Short squeezes• Spinoff effect• Small “float”• News pump and dumps• Under $5 stocks• Rating transformation

Non-fundamental price-moving things

Technical Analysis

• Prices SOMETIMES move in trends– There are three different directions the price can move: up,

down, sideway.– Trend/momentum: if something starts to move towards one

direction, it’s likely to keep moving in that direction.

• History repeats itself• Market Efficiency

– Market discount future information into current price (over trade timeframe)

• “Markets may witness extended periods of random fluctuation, interspersed with shorter periods of nonrandom behavior. The goal is to identify those periods” –Schwager

Assumptions

Momentum vs. Mean Reversion• Momentum– Something different happened, and it will

continue to happen

• Mean reversion– Something different happened, it should go

back to the way it used to be (revert to the mean)

Mean Reversion

Bollinger Band

• Price/Volatility levels over time• Consists of 3 bands– Usually 20 bar SMA, 2 std devs

• Gives a relative level of high/low• Multiple ways of trading– Most effective is range trading during low vol

periods

• Options implications too

Bollinger Band

Trending

MACD

• Momentum indicator• Lagging indicator• MACD = difference b/w fast and slow moving

averages– Generally 12, 26 period EMA’s

• Signal line– 9 period EMA

• Can turn into leading indicator• Works best when used with another indicator

MACD

Trading Tips

• Enter + Exit gracefully– The 1/3 rule

• Don’t be emotional– Stick with your thesis

• Sizing is everything– Don’t accumulate massive positions

• Don’t get greedy/cocky• Don’t be scared to be aggressive• Know what you’re doing

– Know what risk you have on

• Know what you’re good at• Be patient

– You don’t need to make money every day

You wanna be as boss as that kid right?

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