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Monday, February 16, 2015

Interviewing the Quants: Marco Simioni and Nightly Patterns

Welcome back to Interviewing the Quants. This will be the second interview in the series. Many of you might know our guest from his trading at Nightly Patterns ( His name is Marco Simioni and he’s agreed to give us greater insight into what he does and who he is.

(Note: This interview took place via email and has been formatted as an article.)

GM: What lead you to quantitative trading?

MS: Well, my first approach to quantitative trading was while still at university during my first Statistics course. I was used to math, but probabilistic theory completely changed my view on trading. I remember before that course how focused I was on Elliot and Gann theories. Both work, but what I was lacking was an objective approach to trading. I switched from one oscillator to another, indicators and classical technical analysis patterns. But I was still looking for a more systematic way to trade. Finally I came across Michael Harris and Larry Connors' research.

GM: What's your background academically?

MS: I studied Mechanics at high school. Instead of going on with engineering at university I changed my mind and started Economics. I got a Bachelor Degree in Marketing and Management at Cà Foscari University with a thesis in Statistics focusing on Auto Regressive Integrated Moving Average processes. I then specialized with a Master Degree in Economics and Finance with quantitative and risk management oriented studies in the same University with a thesis on a historical analysis of first days market behavior of tech IPO's. All of this apart from my more than ten years of trading studies...

GM: How long have you been trading? What caused you to choose overnight trading?

MS: I've been trading since 2006. I am 28 years old. Despite my quantitative overnight trading I do use many other strategies too. I'm a fan of ETF rotational strategies, VIX ETP's quantitative systems, and mean reverting stock swing trading. My academic background led me through Graham fundamental studies, Greenblatt's formula, and O'shaughnessy's portfolios. I became an overnight trading researcher mainly because it’s uncorrelated to other strategies I use, which results in greater portfolio diversification. And it seemed nearly nobody cared about its profitability at all.

GM: Which principles do you find most useful?

MS: I believe there are two core market principles: a mean reverting regime and a trend following regime. Here sometimes financial academics studies are preceded by traders' experiences. The first more intuitive effect deals with overbought and oversold market conditions. Nearly 70% of all my patterns are mean reverting. I'm constantly researching momentum patterns too, but they are much more difficult to discover. I believe momentum market studies make the difference, because they can prevent false or losing mean reverting trades. So many systems do not work properly mainly because they are not able to detect the differences between these two key market principles. 

GM: Are there any ideas that you find yourself going back to again and again? If so, what are they?

MS: Money management strategies. I'm referring to Kelley's formula, Vince works, Thorpe's studies, Larry Williams's or again Turtles' approaches. I could add many other equally brilliant researchers like Ziemba, Lundstrom and many others and still I would miss someone. I believe whatever system or strategy you trade, money management is vital to survive the markets and deal with high leverage. I'm constantly looking for a better position sizing technique, as I believe something more is still out there to be found.

GM: Why did you decide to create the NightlyPatterns blog?

MS: Trading successfully is difficult. I remember a study from Taiwan stock exchange that highlight the % of successful traders from their account’s net results. It seems that 95% of futures traders after 6 months end burning up all their starting equity. It takes years of researching and testing to build a consistent and successful trading strategy. And when a trader succeeds with it, he keeps it a secret. I started Nightly Patterns blog as a free trading diary, and then I decided to move it to a more professional service. There are so few really successful futures trading rooms that I decided to enter the business. 

GM: What is something most people might find surprising about you or your trading style?

MS: Many traders and bloggers are surprised by my young age. Volatility has kept increasing during the last ten years. Huge algo-trading with “robot” volumes, high tech 2000 end bubble, subprime crisis, commodities crashes, sovereign debt crisis, zero interest behavior environment and currency wars completely changed many old market dynamics. Despite my ten year experience, I believe more in quantitative back testing than a thirty or forty year market experience. This is my "quant" view.

GM: Are there any suggestions you would give to an aspiring trader?

MS: Just read whatever you can about trading before trading. Do not trade first. Just read. Read a lot. Don't get lost in the academic finance research, but don't get lost in all those unhelpful trading books out there either. Read one academic paper from a university teacher on markets and investments and then one trading book from a trader. Do this again and again. Look for your own trading style. Take something from all the books and papers you read and collect everything. Then read blogs and all the website can teach you something. Your trading success will come to you before trading. And of course try to follow some well established traders and mirror them, you will survive the markets.

GM: Thank you for sharing with us today. Do you have any last thoughts?

MS: My last thoughts go to consistency and systems diversification. If you have a system, follow it. This is vital. Follow your system, not your gut. Do not cherry pick your strategies; this will lead you to bankruptcy. You will find yourself taking the worst trades and missing the best ones. If you have a winning system just trade it but always look for another one to add to your trading arsenal. This will lead your results to approach Shannons' Demon Effect. I wish you all a good trading. Thank you very much for your attention.

GM: Thank you again Marco. Thank you everyone else for reading, and please visit him at Nightly Patterns.