Quantitative Trading for Absolute Beginners

In simple words, Quantitative Trading is an investment strategy that uses technology-based logical computations and mathematical algorithms. They are mostly used by fund managers, private equity firms and wealthy individuals. But recently small retail traders have been taking advantage of the stock market using such methods and are converting these tactics into complete automated trading systems.

In Quantitative trading, you have to convert your trading styles and thoughts into a trading system which is rule based that can be executed by a computer. But this is not as easy as it sounds, you would need programming experience or hire an experienced professional to develop Quant trading strategies.

Also Read: How to create Algorithmic Trading system: step by step tutorial

Quantitative Trading

Quantitative Trading system – The Four Main and important Pillars

Below are the four most important steps to develop your quant trading system

  • Strategy Identification – This means that you have to find the best strategy that fits in, find something to exploit in it and then choose the most comfortable frequency of trading.
  • Strategy Back Testing – This step involves collecting the necessary and relevant data and then with the collected information the performance of strategy is analyzed. This needs to be done by taking all biases out.
  • Execution System – This is the step where you connect your chosen strategy to a brokerage. Automating the order process is a simple way to do it. In turn, the costs of the transaction can be reduced by doing so.
  • Risk Management – Perhaps this is the most the most crucial aspect of trading systems. This includes capital allocation optimally and deciding upon one’s “position size”. If you do not understand position sizing and risk management, then you will struggle with building your own trading system.

We believe, Amibroker is the best software to develop any quantitative trading system using above steps. Check out some of the trading strategies developed and backtested using Amibroker at the below link:

Amibroker AFL Trading Systems

Quant Trading vs Algorithmic Trading

Both these terms are used interchangeably in most of the online forums and learning resources. And, in fact there is very thin line of difference between two. Quantitative trading is more about creating mathematical models or rules for your strategy, while Algo trading converts these rules into computational algorithms. Advanced mathematics and statistics are involved in quant trading while programming languages and automation are involved in algorithmic trading. Having said that, there is no definite distinction between the two and its good to assume that they are similar practices.

How to become a Quant Trader

As you can see, Quantitative trading is an incredibly complex and fascinating area of quantitative finance which is why it is mandatory to spend a significant amount of time on groundwork study before taking it as a career. An extensive background in econometrics and statistics, with an experience in implementation of these, by the programming languages such as Python or R or MATLAB. For more complicated strategies at the higher levels, you need to have very good skills in assembly programming,  Linux kernel modification, C/C++ and network latency optimization. You may also want to appear for CMT (Chartered Market Technician) offered by Market Technicians Association(MTA)  based out of USA. Read more about this certification here.

Quantitative trading courses online

It’s not been a very long time since the technical analysis was not considered a profession or skill. With the availability of more refined tools now, individual retail traders are getting pulled in by quantitative trading, and all traders should spend some time learning about it as it is definitely the future of financial markets.

5 Comments

  1. Thankyou Admin for such a detail explanation about Quant trading, would request you if you could provide more info regarding some basics mathematical model or link where we can find such model for the learning and understanding, which would benefit the retail trader or investor.

    • Absolutely Prashant. We are putting together a list of quant trading courses. Please subscribe to this blog to get timely updates.

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