Exclusive Interview: Quant Trader Fari Hamzei Offers His Advice for Investing

Fari Hamzei is a straight shooter. He works hard, takes his craft seriously, and constantly aims to improve. He is the founder of Hamzei Analytics and the author of the excellent book Master Traders: Strategies for Superior Returns from Today’s Top Traders. I had the chance to sit down with Fari to hear his adventurous life story and pearls of trading wisdom:

Background

Fari: I got interested in markets while studying financial engineering at Princeton. I enjoyed analyzing non-linear systems which included both known and unknown variables. That was how I first learned to make decisions while accepting the unknowns — a very critical skill for good traders.

Later, I was at Northrop Grumman where I had access to data systems. A mentor suggested I work on my weaknesses to compliment my strengths. So, I attended the Business School at UCLA. There I learned about equity options. It wasn’t long before VPs at Northrop were coming to my desk in the morning to see what options were worth.

My brother and I teamed up and started writing some balckbox trading programs for futures. After gaining more experience, I ultimately started my own shop Hamzei Analytics.

Advice

Damien: As a quant, how do you keep your systems successful as market characteristics change?

Fari: We are always testing and adapting to improve the programs and keep up with the market environment.

Different signals work in different markets. With our expertise and contacts, we observe when something is working and then adopt it. I am not a first mover. I want to see proof something works before jumping on board.

Damien: What advice do you have for other traders who want to explore a career like yours?

Fari: You must be willing to work on your weaknesses. That was one of the best things I ever did. Too many traders focus on what they do well, but they neglect improvements.

Love your losers. This means you may get lucky or have done everything correct on the trade you won, but don’t dwell on that or waste your time saying how good you are. Instead, go back and learn from your mistakes.

Relatedly, to manage your risk you could determine the standard deviation of your returns and quit once you pass your trigger. This is one example of creating a good routine. You have to find your own routine to be consistent as a trader.

Don’t overtrade. If you don’t see what you want, just watch. I like to sit back and play some music — you can listen with me on Twitter. You will save a lot of money learning to stay out of the market when your system isn’t giving you trading signals.

Lastly, one of the biggest mistakes traders make is not cutting losses fast enough. We’re dominated by a strong psychological force of hope. All pro traders, including myself, are always working to get better at cutting losses. Successful traders must become agnostics about the market’s future. Otherwise emotions will take you out of the game. There is no room for praying while trading. Before you enter a position, you need an exit plan.

I would like to close by reminding people of the cherished words of my Freshman Crew Coach at Princeton: “I will never cut you from the boat, you will cut yourself.” The same goes for trading. If you put in the effort, you can succeed. If not, you will be in deep water.

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