Cesar Alvarez — Building quantitative trading systems to trade the stock market

Smarter Trading Podcast Episode 11

Our guest today is Cesar Alvarez. From 2004 to 2013, Cesar was the Director of Trading Strategies at TradingMarkets.com and Connors Research. Cesar has developed strategies for private equity funds, authored multiple books on trading, and was a Software Engineer on the early versions of Microsoft Excel. He is well known in the quant community nowadays for his blog, Alvarez Quant Trading.

In this episode we talk about what it means to be a systems trader. Why Cesar willingly leaves money on the table in order to be fully systematic, and why it’s so important a traders personality matches their trading strategy.

We then get Cesar’s research process, how he finds ideas, develops systems, and then maintains and reviews those systems.

Please enjoy this episode with professional trader Cesar Alvarez.

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Watch the interview in video here

Episode show notes and Cesar’s book recommendations

• High Probability ETF Trading: 7 Professional Strategies To Improve Your ETF Trading: Alvarez, Cesar and Connors, Larry Amazon.com: Books
• Short Term Trading Strategies That Work: Alvarez, Cesar and Connors, Larry Amazon.com: Books
• How Markets Really Work: Quantitative Guide to Stock Market Behavior, 2nd Edition: Alvarez, Cesar and Connors, Larry Amazon.com: Books
• Dual Momentum Investing: An Innovative Strategy for Higher Returns with Lower Risk: Antonacci, Gary Amazon.com: Books

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Key learning points & timestamps

• 0:00 Introduction
• 2:50 Cesar’s background and how he got started
• 6:30 Director of research with Larry Connors
• 9:18 Why Cesar moved on from discretionary trading
• 12:50 Cesar’s current philosophy and way he approaches trading
• 15:05 Why Cesar knows he’s leaving money on the table being fully systematic
• 19:10 Research piece: how often does a 5% pullback turn into 10% or 20%
• 25:20 Research piece: trend versus momentum trading strategies
• 28:15 What is “good enough” for Cesar to use as a trading system
• 32:05 Classifying trading systems: mean reversion, trend, momentum, rotational
• 35:05 Matching personalities and trading systems
• 37:20 Mean reversion strategies and stop losses
• 39:45 strategy review and thinking about system optimization
• 43:30 Seasonality as a factor and intraday trading strategies
• 45:55 New quant traders and learning how to code

Highlight clip: How often does a 5% pullback turn into a 10% pullback?