Algorithmic trading is one of the most common concepts of quant that will definitely come across during your lifetime. This topic is essential for a quant professional to master as it forms the basis of his career. While most of the concepts related to algorithmic trading are straightforward, there are some in-depth topics which require a little bit of effort, however, are easy to grasp.
One of the best things with regards to learning algorithmic trading is the fact that many funds tend to have simulators where you can practice and brush up your skills. However, many people face challenges when it comes to choosing the right path or book for learning algorithmic trading. Therefore to help students understand, we decided to list the top 5 books which can help put you on the right track to becoming a quant trader.
1. Algorithmic Trading
This is one of the two books published by Dr Ernest Chang which focusses on algorithmic trading and helps students understand some basic concepts associated with same. While we recommend you to read this book after reading the first part, mentioned below, this is placed on the first position given the concepts discussed here are directly related to algorithmic trade. Concepts such as mean reversion and momentum have been clearly explained in the book.
2. Inside the Black Box
Inside the Black Box focusses on the process on which a traditional hedge fund operates. While the book is of little value to retail investors, it does contain concepts of quantitative trade which explain precisely how algorithmic trading should function. For example, the author in this book has tried to lay out the value of risk assessment as well as transaction costs and further has mentioned secrets to trade which the professional algorithmic traders use.
3. Quantitative Trading
This is the first instalment to the Ernest Chang series of algorithmic trading. Here Prof. Chang explains in deep detail methods of establishing a retail trading system, in a manner that anyone can understand. He further tends to develop and discuss concepts related to quantitative trade such as risk assessment, alpha generation etc. and mentioned other topics such as mean deviation in the other part.
4. Trading and Exchanges
One of the very few books focussed on market microstructure, trading and exchanges allow the reader to understand the dynamics of the market and how a trade, enters, performs in an order book. It explains the anatomy of trade starting from how an order is placed and what happens once it enters the book. Understanding the functioning of the market is critical if one needs to become an excellent quantitative trader and wants to obtain knowledge of risk assessment and management based on market sentiment.
5. Algorithmic Trading & DMA
This book written by Barry Johnson focusses on tools and technique of quantitative trade. While algorithmic trade is based on trades performed based on algorithms, this book dwells more on the market microstructure, which in turns tends to help the traders complete and carry out trades in the retail domain. The book further discusses tips and techniques of forming and creating the models which can withstand risks and cause minimum loss and maximum profit.
So these were the top 5 books which we believe are the best for a beginner to learn algorithmic trade. Do let us know what you think about the writeup in the comment section below.
