Quantitative Trading
                     QUANTITATIVE 
QTURAANTDITIANTIGVE 
TRADING
What Is Quantitative Trading?
◦ Quantitative trading consists of trading strategies based on 
quantitative analysis, which rely on mathematical 
computations and number crunching to identify trading 
opportunities. 
Source: www.investopedia.com
Identify opportunities
◦ In this type of trading, back tested data are applied to 
various scenarios to help identify opportunities for profit.
Source: www.investopedia.com
Optimal use of available data
◦ The advantage of quantitative trading is that it allows for 
optimal use of available data and eliminates the emotional 
decision-making that can occur during trading.
Source: www.investopedia.com
Limited use
◦ A disadvantage of quantitative trading is that it has limited 
use: a quantitative trading strategy loses its effectiveness 
once other market actors learn of it, or as market conditions 
change.
Source: www.investopedia.com
Understanding Quantitative Trading
◦ Quantitative traders take advantage of modern technology, 
mathematics, and the availability of comprehensive 
databases for making rational trading decisions.
Source: www.investopedia.com
Trading technique
◦ Quantitative traders take a trading technique and create a 
model of it using mathematics, and then they develop a 
computer program that applies the model to historical 
market data. The model is then back tested and optimized.
Source: www.investopedia.com
Major components
◦ Strategy Identification - Finding a strategy, exploiting an 
edge and deciding on trading frequency
◦ Strategy Backtesting - Obtaining data, analysing strategy 
performance and removing biases
◦ Execution System - Linking to a brokerage, automating 
the trading and minimizing transaction costs
◦ Risk Management - Optimal capital allocation, "bet 
size"/Kelly criterion and trading psychology
Source: www.investopedia.com
Strategy Identification
◦ All quantitative trading processes begin with an initial period 
of research. 
◦ This research process encompasses finding a strategy, 
seeing whether the strategy fits into a portfolio of other 
strategies you may be running, obtaining any data 
necessary to test the strategy and trying to optimise the 
strategy for higher returns and/or lower risk. 
Source: www.investopedia.com
Strategy Backtesting
◦ The goal of backtesting is to provide evidence that the 
strategy identified via the above process is profitable when 
applied to both historical and out-of-sample data.
Source: www.investopedia.com
Execution Systems
◦ An execution system is the means by which the list of trades 
generated by the strategy are sent and executed by the 
broker. 
◦ Despite the fact that the trade generation can be semi- or 
even fully-automated, the execution mechanism can be 
manual, semi-manual (i.e. "one click") or fully automated.
Source: www.investopedia.com
Risk Management
◦ The final piece to the quantitative trading puzzle is the 
process of risk management. "Risk" includes all of the 
previous biases we have discussed. It includes technology 
risk, such as servers co-located at the exchange suddenly 
developing a hard disk malfunction. 
Source: www.investopedia.com