1. 1 ECBS 5093 Financial Trading Design and Technology MSc in Finance, MSc in Business Analytics 2019-20 Lecture 1: Basic concepts: Market structure, price action Random walk, EMH, Wyckoff Analyses: fundamental, macro, technical, quant Lecture 2: Trading strategy design, type of systems The market as a reflection of crowd psychology What is an edge and why it is needed Using quantitative methods in system design Lecture 3: Building a trading system Building Entry and Exit signals Defining trade management rules Managing risk and capital Lecture 4: System testing Backtesting vs forward testing In-sample, out-of-sample testing Record-keeping Lecture 5: Psychology of trading The unique challenges of trading Managing cognitive biases Discipline, Trading as a business Lecture 6: Group presentations, final exam Essay-style and multiple choice closed book exam LECTURE 6 Review + Exam Ferenc T Meszaros, MBA, MSc Visiting Lecturer MSc in Finance, MSc in Business Analytics Central European University Classroom: Zoom Office: Online, by appointment Cell: +1 647 972 1058Online, by appointment Email meszarosf@ceu.edumeszarosf@ceu.edu Business: www.remek.ca

2. Lecture 6 What did you learn? 2 What you should remember from this course: - markets are highly (but not totally) efficient, in other words: mostly (but not always) random - markets are competitive: it’s very difficult to make money consistently - human behaviour leaves patterns on charts - it is possible to take advantage of those patterns - trading is a numbers game: any edge only manifests itself over a large sampe size - you cannot make money in a random environment: you must find something that is less than (not totally) random.

3. Lecture 6 What we didn’t talk about: the news* 3 News Fibonacci Moving average as support Candlestick patterns Chart patterns (e.g. H&Sh) * aka ‘financial entertainment industry’

4. Lecture 6 What we didn’t talk about: myths (e.g. fibs) 4 News Fibonacci Moving average as support Candlestick patterns Chart patterns (e.g. H&Sh)

5. Lecture 6 What we didn’t talk about: moving averages as support/resistence 5 News Fibonacci Moving average as support Candlestick patterns Chart patterns (e.g. H&Sh)

6. Lecture 6 What we didn’t talk about: candestick patterns 6 News Fibonacci Moving average as support Candlestick patterns Chart patterns (e.g. H&Sh) ECBS5093 Financial Trading Design and Technology, 2019-20

7. Lecture 6 What we didn’t talk about: a million “patterns” 7 News Fibonacci Moving average as support Candlestick patterns Chart patterns (e.g. H&Sh) ECBS5093 Financial Trading Design and Technology, 2019-20

8. Lecture 6 The question you must ask 8 Is there a high likeliness of non-random price action in the area I want to trade? “To trade successfully, you must have an edge. If you don’t know what your edge is, you don’t have one.” - Jack D. Schwager “Financial markets are very competitive, and there is no free lunch.” - Adam Grimes “There are many, many ways to make a profit on financial markets. Paradoxically, they’re all very difficult to find.” - Jack D. Schwager ECBS5093 Financial Trading Design and Technology, 2019-20 “Remember: trading is a numbers game.”

9. 9 Lecture 6 Further studies and resources All the resources you need ECBS5093 Financial Trading Design and Technology, 2019-20 Also check out: - Mark’s videos on youtube - Adam’s website, podcast and trading course - SI’s videos on youtube - Remek!’s videos on youtube

10. 10 Lecture 6 Are markets evolving? - Adaptive Market Hypothesis EMH – rooted in classical economics AMH – reconcile EMH with observed phenomena to describe reality better The adaptive market hypothesis, as proposed by Andrew Lo is an attempt to reconcile the efficient market hypothesis (which implies that markets are efficient) with behavioral economics by applying the principles of evolution (competition, adaptation and natural selection) to financial interactions. Andrew Lo’s lecture Andrew Lo’s lecture ECBS5093 Financial Trading Design and Technology, 2019-20

11. 11 ECBS 5093 Financial Trading Design and Technology MSc in Finance, MSc in Business Analytics 2019-20 Lecture 1: Basic concepts: Market structure, price action Random walk, EMH, Wyckoff Analyses: fundamental, macro, technical, quant Lecture 2: Trading strategy design, type of systems The market as a reflection of crowd psychology What is an edge and why it is needed Using quantitative methods in system design Lecture 3: Building a trading system Building Entry and Exit signals Defining trade management rules Managing risk and capital Lecture 4: System testing Backtesting vs forward testing In-sample, out-of-sample testing Record-keeping Lecture 5: Psychology of trading The unique challenges of trading Managing cognitive biases Discipline, Trading as a business Lecture 6: Group presentations, final exam Essay-style and multiple choice closed book exam LECTURE 6 Review + Exam Ferenc T Meszaros, MBA, MSc Visiting Lecturer MSc in Finance, MSc in Business Analytics Central European University Classroom: Zoom Office: Online, by appointment Cell: +1 647 972 1058 Email meszarosf@ceu.edu Business: www.remek.ca