Quality Money Management: Process Engineering and Best Practices for Systematic Trading and Investment
The financial markets industry is at the same crossroads as the automotive industry in the late 1970s. Margins are collapsing and customization is rapidly increasing. The automotive industry turned to quality and its no coincidence that in the money management industry many of the spectacular failures have been due largely to problems in quality control. The financial industry in on the verge of a quality revolution.
New and old firms alike are creating new investment vehicles and new strategies that are radically changing the nature of the industry. To compete, mutual funds, hedge fund industries, banks and proprietary trading firms are being forced to quicklyy research, test and implement trade selection and execution systems. And, just as in the early stages of factory automation, quality suffers and leads to defects. Many financial firms fall short of quality, lacking processes and methodologies for proper development and evaluation of trading and investment systems.
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Tagged with: Best • Engineering • Investment • Management • Money • Practices • Process • Quality • Systematic • Trading
I have read all of Van Vliet’s books on this subject and even taken a class he taught. I think he really has a handle on the future of financial technology.
This book really flows and makes sense. I was afraid the concepts might be too technical but I was pleasantly surprised at how the authors connected the dots. The concepts and methodology detailed in this book are certainly a significant step forward in trading system design.
I thought this book was going to be about ‘money management’ in the sense that it is usually referred to in the automated trading system community, ie about risk control and position sizing, etc.. those topics are briefly discussed in a very general sense but are far from the topic of this book.
The actual content of the book is more akin to a process management book for trading systems, it borrows heavily from (and often misinterprets) software development and industrial process methodologies such as waterfall, agile, lean, etc..
Overall the book is very general and very light on specific content, perhaps it could be of some use to a manager with no prior exposure to trading systems or software development, but I would definitely not recommend it to a developer.
Quality Money Management is a very timely book meant to bring quality control processes to the trading process. It provides a detailed look at using well-known product development processes in the finance community. Variation is a big weakness of any system that could undercut a great trading strategy. After all, one cannot foresee all possibilities. The use of a systematic approach that addresses development phases requiring management involvement and extensive testing prior to deploying a new trading system is a unique aspect of this book.
As a former six sigma black belt at a Fortune 500 company overseeing product development and quality control who utilized similar processes, it never ceases to amaze me how much money is lost in the transactional processes that govern financial institutions. One would do well to apply these principles in an adapted form at their financial institution for trading systems, risk management systems, and model development…a paradigm shift indeed. I would recommend this book to anyone who wants to improve their margins with a very cost effective solution.
This book is a valuable checklist for managers responsible for the development of financial (software) systems. Development teams will profit by studying this book before starting a new project.
Although formal process quality improvement has been around for several years, the contribution of these authors is unique in the way they have combined the best of the many techniques available and explained where and when their use is appropriate in the development of a financial application.
The reader should be aware that despite its encyclopedic and cookbook appearance, this book is only a starting point for the practitioner. As the authors point out: Every project will need its own customized set of processes. Their K|V methodology provides the framework.
The second thing to be aware of is that a book that covers the entire methodology can not possibly cover the details on all techniques. It is especially important to keep this in mind in the quality improvement area where technique seem trivial. In my own experience I have seen teams dismiss techniques such as the “Five whys” and fish-bone diagrams, because their facilitators were insufficiently aware of the subtleties of these methods. Both of these techniques are described in the book in sufficient manner so that the prospective user will understand their usefulness. The next step will be to learn the details in specialized books. Similar comments could be made in regards to code inspections and reviews.
There are many more techniques in this book with whom I do not have personal experience, so I am extrapolating when assuming that the level of treatment would be the same. If it were not, than we could complain about unequal treatment. If it is, then we still have an excellent book that not only raises awareness but also gives very direct and specific guidelines.
An advantage of the chosen level is that the book can touch upon many more techniques without being too voluminous.
And maybe most importantly, it keeps it readable for higher management which is important when using the book to get their support.
Teams starting a new project should read this together, then decide how to proceed. Teams finding themselves drowning might very well find some ideas to work themselves out of their problems.