103
The final loop through this step should also define what the appropriate risk tools will
be. A discussion of these tools should then be added to the description. This will pre-
pare us for Stage 4, Step 1—Monitor Portfolio and Statistics as well as Stage 4, Step 2—
Document Profit and Loss Attribution.Very few firms pay attention to defining what will constitute abnormal or nonstable performance rela-
tive to a benchmark or peer group once they implement a system. Those that do will have a competitive
advantage once certain indicators lose relevance.9.5. Summary
The world of trading and investment has changed from one of place and time to one
of algorithms and computer speed. Good research is no longer a luxury; it is a neces-
sity. Simply adding more analysts to produce more standard research does not work. It
takes too long. Ideas must be generated and vetted quickly. Nevertheless, clean, well-
documented trading/investment rules lead to better automation of trading processes and
scalable systems. To speed up research the firm should consider building or buying auto-
mated research and/or strategy evaluation tools. Research is applied, not theoretical, and
our spiral methodology followed by a gate meeting should focus researchers on business
deliverables instead of elegant equations. The advantages of doing research properly are
many and cannot be overstated. Good research forms the foundation of a scalable trading/
investment business.9.5.1. Best Practices
● Before each loop through this research step, the team should form a hypothesis
as to what they expect the research to accomplish. Be sure to have well-defined
boundaries.
● Work from the general to the specific.
● Keep research independent of data and testing (our methodology forces this separa-
tion). Likewise, separate the process of specifying the formulas from building the
prototypes.
● Keep records of research as you go. Translate notation into a common format as you
proceed.
● Identify several potential solutions and evaluate them, as well as their respective
sources carefully, and review your work weekly.9.5. SUMMARY