Monday, October 11, 2010

What is quantitative trading?

What is a quantitative trader?
Being a quantitative trader simply means that you invest or trade in strategies that can be supported by statistical data.  You manage your capital in a systematic, model based fashion. Quant portfolios are designed to strip out the emotion of a trade.  The rationale for the trade is supported years of back tested data.
You have an idea, then back test it. It's optomized, refined, backtested agin until rules are established. Then the strategy is employed, following the rules.
It doesn't have to be complicated or overly technical. You could test a system that buys any stock after it has declined 10%, or short any ETF that rises 3% above it's 5 day moving average. It just starts with an idea, an edge.
The one thing I like a about a trading system is that it takes the emotion out of trading. Emotion is my worst enemy in trading. Fear. Greed. Panic. Euphoria.  By eliminating emotion, human inefficienies are reduced, and profits can increase.
There is so much more that goes into building and trading a model.  Setup. Design. Backtesting. Indicators. Position sizing. Entries and Exits. Business plan.
Saved for future posts


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