Quality Money Management : Process Engineering and Best Practices for Systematic Trading and Investment

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● Review these inputs to assure they are complete and not conflicting.

● Time-to-market, cost, materials, reuse of appropriate designs, and compatibility issues

with existing systems.

Stage 1 design and development outputs must:

● Meet the backtesting stage input requirements.

● Provide information needed for purchasing data, building the system.

● Either contain or make reference to trading system acceptance criteria.

● Specify characteristics necessary for safe implementation including software

attributes and requirements.

● Design and development outputs must be in a form that allows verification against

the inputs.

In order to proceed, the team leader must assign tasks to the various members of the team

(division of labor is key to success). In general, the trader defines trading rules and logic,

the financial engineers research quantitative methods, and programmers (with financial

engineers) prototype models as necessary. This way, the existing technology platform, or

technology stack, becomes a part of the context in which requirements are formulated.

The marketing professional will primarily investigate competing systems. All team

members are responsible for performance testing. In the end, the team is responsible for

all tasks. Tasks are given and finished parts assembled after completion of each iteration.

Then, new knowledge is added to a written description.

The description step encompasses the planning and management of each loop. The

iterative process of researching, prototyping, testing, and the documentation of results and

new knowledge will allow all team members to educate themselves on all parts of the sys-

tem. The first encounter with the first stage starts where the Money Document left off. (The

Money Document is the input into Stage 1.) The description of the trading system from the

Money Document serves as the launching point for entry into the entire K|V model. From

there the product team loops until they arrive back at the first step, Describe the Trading

Idea. Each time through the spiral, the team adds new knowledge to the written descrip-

tion and plans the scope of the activities for the next loop. Each time they encounter the

Research Quantitative Methods step, they will gather new information and new knowledge,

which they will incorporate into a new prototype, which will then be tested, and so on.

Over the course of Stage 1, the team defines and documents order selection algorithms,

order execution algorithms, and base-level performance and risk management metrics.

Upon completion of Stage 1, the description will have evolved to contain all of the quanti-

tative methods and all of the business logic of the trading/investment system. Further, the

team will have completed its research into strategies and quantitative methods and created

working, fully tested prototypes. The team will present the documentation of their activi-

ties at the Gate 1 meeting. The description, references, and prototypes developed in Stage 1

will gradually evolve into a software requirements specification document for Stage 3.

7.1. LOOP 1: Analyze Competing Strategies

STEP 1: Review Money Document Description

STEP 2: Research Similar/Competing Systems

STEP 3: Prototype Known Calculations

STEP 4: Perform White Box Test of Formulas

7.1 LOOP 1: ANALYZE COMPETING STRATEGIES