What do you think?
Rate this book
Algorithmic Trading: Winning Strategies and Their Rationale
Praise for Algorithmic Trading
"Algorithmic Trading is an insightful book on quantitative trading written by a seasoned practitioner. What sets this book apart from many others in the space is the emphasis on real examples as opposed to just theory. Concepts are not only described, they are brought to life with actual trading strategies, which give the reader insight into how and why each strategy was developed, how it was implemented, and even how it was coded. This book is a valuable resource for anyone looking to create their own systematic trading strategies and those involved in manager selection, where the knowledge contained in this book will lead to a more informed and nuanced conversation with managers."
--DAREN SMITH, CFA, CAIA, FSA, President and Chief Investment Officer, University of Toronto Asset Management
"Using an excellent selection of mean reversion and momentum strategies, Ernie explains the rationale behind each one, shows how to test it, how to improve it, and discusses implementation issues. His book is a careful, detailed exposition of the scientific method applied to strategy development. For serious retail traders, I know of no other book that provides this range of examples and level of detail. His discussions of how regime changes affect strategies, and of risk management, are invaluable bonuses."
--Roger Hunter, Mathematician and Algorithmic Trader
"Algorithmic Trading is an insightful book on quantitative trading written by a seasoned practitioner. What sets this book apart from many others in the space is the emphasis on real examples as opposed to just theory. Concepts are not only described, they are brought to life with actual trading strategies, which give the reader insight into how and why each strategy was developed, how it was implemented, and even how it was coded. This book is a valuable resource for anyone looking to create their own systematic trading strategies and those involved in manager selection, where the knowledge contained in this book will lead to a more informed and nuanced conversation with managers."
--DAREN SMITH, CFA, CAIA, FSA, President and Chief Investment Officer, University of Toronto Asset Management
"Using an excellent selection of mean reversion and momentum strategies, Ernie explains the rationale behind each one, shows how to test it, how to improve it, and discusses implementation issues. His book is a careful, detailed exposition of the scientific method applied to strategy development. For serious retail traders, I know of no other book that provides this range of examples and level of detail. His discussions of how regime changes affect strategies, and of risk management, are invaluable bonuses."
--Roger Hunter, Mathematician and Algorithmic Trader
224 pages, Paperback
First published January 1, 2013
184 people are currently reading
1257 people want to read
Ratings & Reviews
Friends & Following
Create a free account to discover what your friends think of this book!
Community Reviews
Displaying 1 - 11 of 11 reviews
November 28, 2024
Algorithmic Trading a true pleasure to read and my new go-to recommendation for someone interested in mid-frequency quant.
Chan’s blog is well known amongst practitioner quants (it is often one of the early resources one encounters). But I had mixed feelings about the first book – Quantitative Trading – it was too focused on nuts-and-bolts practicality, with a lot of ink spent describing different data vendors (many of which were obsolete at the time of reading).
Algorithmic Trading instead focuses more on the actual trading strategies: Chan walks through several real strategies, outlining the critical theory but also providing the implementation in Matlab.
While many of the tools he introduces may not be entirely new to people familiar with basic statarb ideas, Chan has a knack for identifying subtleties that other texts often gloss over (for example using log prices vs prices to construct mean-reverting spreads) and lucidly explaining the implications of various design choices. He contrasts multiple tools against each other both theoretically and experimentally – taking a step back, it is very helpful to see these examples of experiment design, which apply far beyond the specific strategies presented in the book.
Chan’s blog is well known amongst practitioner quants (it is often one of the early resources one encounters). But I had mixed feelings about the first book – Quantitative Trading – it was too focused on nuts-and-bolts practicality, with a lot of ink spent describing different data vendors (many of which were obsolete at the time of reading).
Algorithmic Trading instead focuses more on the actual trading strategies: Chan walks through several real strategies, outlining the critical theory but also providing the implementation in Matlab.
While many of the tools he introduces may not be entirely new to people familiar with basic statarb ideas, Chan has a knack for identifying subtleties that other texts often gloss over (for example using log prices vs prices to construct mean-reverting spreads) and lucidly explaining the implications of various design choices. He contrasts multiple tools against each other both theoretically and experimentally – taking a step back, it is very helpful to see these examples of experiment design, which apply far beyond the specific strategies presented in the book.
October 4, 2022
This is a really good book, which the author teaches the basics of algo trading.
Author focuses most on mean reversion strategies, teaching about cointegration tests, Hurst exponent, etc. There is a point that I don't agree with him, he likes mean reversion more than momentum because he thinks momentum might break up suddenly. Well, there are studies showing that for centuries momentum strategies works, and mean reversion strategies might with a single rare loss wipe your account. At least the author says we must indeed be aware of this. Showing that correlations/cointegrations can be broken.
He advocates more ETF than stocks for mean reversion, due to the possibility that single events on a stock may disrupt the cointegration. Anyway, it has some interesting results on simple mean-reversion models on relative returns. The problem, I think, is that probably the strategies here might even be unprofitable due to slippage and commissions. Teaches how to use the Kalman filter to dynamically update the expected price of an instrument.
Author have some ideas for using an instrument with cointegrates with spot price/return of a commodity, to extract the roll return of the commodity future by shorting it during backwardation or longing it during contango, showing also that momentum models thrive on black swan events (unlike mean-reversion).
He says that intraday momentum strategies has many advantages, pointing to some possible strategies for doing it, like order flow, stop hunting, HFT imbalance, rebalancing of ETFs/indexes, breakouts and opening gap strategies.
Finally, on risk indicators, he likes half-Kelly formula (more explained on his other book), but says that Monte Carlo simulations are better if strategy returns are fat-tailed (trend following strategies). There is a special topic on "Constant proportion portfolio insurance" method
Great book, I highly recommend it.
Average reading time: 6h30m
Author focuses most on mean reversion strategies, teaching about cointegration tests, Hurst exponent, etc. There is a point that I don't agree with him, he likes mean reversion more than momentum because he thinks momentum might break up suddenly. Well, there are studies showing that for centuries momentum strategies works, and mean reversion strategies might with a single rare loss wipe your account. At least the author says we must indeed be aware of this. Showing that correlations/cointegrations can be broken.
He advocates more ETF than stocks for mean reversion, due to the possibility that single events on a stock may disrupt the cointegration. Anyway, it has some interesting results on simple mean-reversion models on relative returns. The problem, I think, is that probably the strategies here might even be unprofitable due to slippage and commissions. Teaches how to use the Kalman filter to dynamically update the expected price of an instrument.
Author have some ideas for using an instrument with cointegrates with spot price/return of a commodity, to extract the roll return of the commodity future by shorting it during backwardation or longing it during contango, showing also that momentum models thrive on black swan events (unlike mean-reversion).
He says that intraday momentum strategies has many advantages, pointing to some possible strategies for doing it, like order flow, stop hunting, HFT imbalance, rebalancing of ETFs/indexes, breakouts and opening gap strategies.
Finally, on risk indicators, he likes half-Kelly formula (more explained on his other book), but says that Monte Carlo simulations are better if strategy returns are fat-tailed (trend following strategies). There is a special topic on "Constant proportion portfolio insurance" method
Great book, I highly recommend it.
Average reading time: 6h30m
August 13, 2025
Good introduction; would be easier to digest if it wasn't in MATLAB
November 3, 2013
Doesn't spend a lot of time thinking about the economics of the strategies constructed and therefore what risk is actually being taken on, but otherwise a very interesting and clearly-written book. Covers a lot of ground and has solid description of the design process and rationale for the strategies described.
January 9, 2018
Not so great book. May be a book with python examples would be helpful
December 7, 2025
It was good. Pretty easy read. For me only chapter 1–3 and 6–8 were relevant, so I read those. I might read 4–5 in the future.
Gives a good introduction, but the math was too heavy for me. I don't really care about implementation details, I'm only interested in the application. Hurst exponent, ADF, CADF, Kalman filter, Kelly formula, all new concepts that are relevant, but I need to spend more time to learn what means and how to apply.
It's a good introduction to how to think like a quant.
Gives a good introduction, but the math was too heavy for me. I don't really care about implementation details, I'm only interested in the application. Hurst exponent, ADF, CADF, Kalman filter, Kelly formula, all new concepts that are relevant, but I need to spend more time to learn what means and how to apply.
It's a good introduction to how to think like a quant.
March 15, 2024
I thought that this book did a good job of presenting difficult concepts in a more approachable way, but I have a hard time getting over how bad the code is --maybe that's just MATLAB, but I think rewriting the code samples in this book would go a long way.
May 1, 2018
A bit shallow.
January 7, 2019
Very nice. Both scientific and practical.
April 4, 2022
3.75/5
July 2, 2024
my first quant finance book and one of the few books on how to actually create trading strategies using the actual statistics to backup your findings
Displaying 1 - 11 of 11 reviews