You're reading from Learn Algorithmic Trading

Product typeBook

Published inNov 2019

Reading LevelIntermediate

PublisherPackt

ISBN-139781789348347

Edition1st Edition

Languages

Python

Concepts

Financial Technology

Authors (2):

Sebastien Donadio

Sourav Ghosh

View More author details

Making a risk management algorithm

By now, we're aware of the different types of risks and factors, including the risks in a trading strategy and the most common risk metrics for algorithmic trading strategies. Now, let's have a look at incorporating these risk measures into our volatility adjusted mean reversion trading strategy to make it safer before deploying it into live markets. We will set the risk limits to 150% of the maximum achieved historically. We are doing this because it is possible that there is a day in the future that is very different from what we've seen historically. Let's get started:

Let's define our risk limits, which we are not allowed to breach. As we discussed previously, it will be set to 150% of the historically observed maximums:

# Risk limits
RISK_LIMIT_WEEKLY_STOP_LOSS = -12000 * 1.5
RISK_LIMIT_MONTHLY_STOP_LOSS = -14000...

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Learn Algorithmic Trading

Published in: Nov 2019Publisher: PacktISBN-13: 9781789348347

Authors (2)

Sebastien Donadio

Sebastien Donadio is the Chief Technology Officer at Tradair, responsible for leading the technology. He has a wide variety of professional experience, including being head of software engineering at HC Technologies, partner and technical director of a high-frequency FX firm, a quantitative trading strategy software developer at Sun Trading, working as project lead for the Department of Defense. He also has research experience with Bull SAS, and an IT Credit Risk Manager with Socit Gnrale while in France. He has taught various computer science courses for the past ten years in the University of Chicago, NYU and Columbia University. His main passion is technology but he is also a scuba diving instructor and an experienced rock-climber.
Read more about Sebastien Donadio

Sourav Ghosh

Sourav Ghosh has worked in several proprietary, high-frequency algorithmic trading firms over the last decade. He has built and deployed extremely low latency, high-throughput automated trading systems for trading exchanges around the world, across multiple asset classes. He specializes in statistical arbitrage market-making and pairs trading strategies with the most liquid global futures contracts. He is currently the vice president at an investment bank based in São Paulo, Brazil. He holds a master's in computer science from the University of Southern California. His areas of interest include computer architecture, FinTech, probability theory and stochastic processes, statistical learning and inference methods, and natural language processing.
Read more about Sourav Ghosh

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Authors (2)

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