Profitability Tips for Quant Traders

Can You Get Rich by Quant Trading? Profitability Tips for Quant Traders

Yes, you can get rich from quant trading, but many factors must go your way. Quant trading is challenging, just like any new business startup. Most quant traders fail. Competition is stiff, and you need to know your place in the food chain. We provide some tips and tricks to help you become a profitable quant trader and you may end up rich by quant trading.

There are many reasons why someone starts quant trading. Freedom, independence, wealth, and scalability are a few reasons why someone starts trading, but we suspect the drive for instant wealth is the driving force for many. Yes, independence and freedom are nice, but ultimately, many want to get rich quickly. Is that likely, or is it just a pipe dream? Can you get rich by quant trading?

Quant Trading Get Rich Quick or Sustainable Strategy

Are you likely to get rich as a quant trader?

You are not likely to get rich as a quant trader – the statistics are not on your side as a quant trader, as our trading statistics show. Unfortunately, most who start trading fail or end up going nowhere. Short-term trading is close to a zero-sum game, and you need an excellent business plan to make money against the other participants in the market.

Is quant trading profitable?

Quant trading can be profitable but it requires a trading plan where you trade many strategies. But if you are good, it can become very profitable because short-term quant trading is a scalable business:

Is quant trading scalable?

Quant trading is scalable and thus has the potential to make you rich (if that is your aim).

What is a scalable business? In The Black Swan, Nassim Nicholas Taleb writes this about scalable businesses:

A scalable profession is good only if you are successful; they are more competitive, produce monstrous inequalities, and are far more random with huge disparities between efforts and rewards — a few can take a large share of the pie, leaving others out entirely at no fault of their own.

One category of profession is driven by the mediocre, the average, and the middle-of-the-road. In it, the mediocre is collectively consequential. The other has either giants or dwarves — more precisely, a very small number of giants and a huge number of dwarves.

A scalable business is something that can easily be expanded or upgraded. Short-term trading is more scalable than long-term investing due to the high turnover of the capital and the ample opportunities for gearing, either via futures, derivatives, proprietary trading, or margin accounts.

This makes trading attractive because you can get a much higher return on your equity than “boring” long-term compounding. Because most individual traders are small, relatively speaking, they face no constraints in size as a big fund does.

For example, The Medallion Fund has returned about 66% from 1988 until 2018, but most profits are distributed annually. They can’t compound the returns – it has to be distributed so as not to put constraints on their strategies.

Is quant trading profitable?
Scalable vs. non scalabe

Taleb likes to use examples involving dentists. A dentist can make 300,000 a year with little variations, but the hours are fixed and limit the amount a dentist can make. It’s not scalable but has a much higher possibility of giving a positive return. The dentist’s business can be the red line in the chart above. No matter how hard a dentist works, there’s a limit on how much he can make.

Opposite, a scalable business can take the form of the black line – it’s exponential. Another example of a scalable business is most business owners or entrepreneurs.

But one aspect of short-term trading and scalable businesses is often neglected: it usually has a binary outcome, as Taleb emphasizes. You either end up losing, or you become successful and rich. Like in the internet and e-commerce world, much of the money ends up in the pockets of a few. The few winners take most of the profits.

Long-term compounding is different. As long as you avoid the gravest mistakes, you are highly likely to end up reasonably wealthy if you are patient and let your capital compound without interfering by trying to time or outsmart the market. 

Women have proven to be better investors than men, by merely buying and forgetting about their investments. They are more successful because they are not trying to be smart and have no aim of “beating the market”; the latter is, for many, an obsession.

We can conclude that scalable businesses and professions are good if you are successful. However, as Taleb argues, most of the positive outcomes are a result of randomness. Read his book Fooled By Randomness to understand why.

Are rich quant traders a result of survivorship bias?

Many rich quant traders are simply the result of survivorship bias. There are som many trying, and a very few will be very rich and successful simply by chance and randomness.

The media loves a good story about someone successful. Recently one of the major US newspapers ran a story about Sylvester Stallone who invested in himself and became rich, successful, and famous. He was about to get evicted, but things turned around for the better at the last minute. This proves the importance of “investing in yourself”, wrote the US paper.

However, he’s just one of the hundreds of thousands who failed trying to do the same. Most would be better off working for the minimum wage and potentially climb the corporate ladder, if possible, with very little randomness.

How do you become a successful quant trader?

You become a successful quant trader by having the right mindset and work ethic, which involves a conservative approach to risk, being systematic, and being aware of the risk of ruin.

Nassim Nicholas Taleb is smart, and in Antifragile, he writes that rationality is the avoidance of ruin.

If you want to be a successful quant, you must avoid mistakes that limit compounding. With no capital, it’s impossible to compound. A drawdown of 75% requires 400% gains to recover. If you lose 30%, you need 43% to recover—the sequence of your returns matters.

Let’s look at the some of the key takeaways from from the world’s most successful quant fund: The Medallion Fund. They offer a good checklist for what it requires to become a rich and successful quant trader. Jim Simon’s Medallion Fund is arguably the world’s most successful quant fund. Can they provide any lessons for the novice trader? We believe some principles are worthwhile mentioning:

  • Trade often – aim for high frequency
  • Trade many markets, time frames, and asset classes – diversify your strategies
  • A meaningful strategy needs many data points
  • Scale in, scale out
  • Numbers trump intuition
  • The logical strategies get obsolete
  • If the strategy is hard to explain, it can still be tradeable
  • Mean reversion is the easiest strategies to trade
  • Leverage can be lethal

What percentage of quant traders are profitable?

We estimate that only 5 to 10% of the quant traders are profitable over longer time periods. Please have a look at the statistics about what percentage of day traders fail and what percentage of traders fail.

Of course, it is impossible to know the EXACT percentage of profitable traders.

If you aim to make half a percent per year, more traders would be successful. However, because it’s scalable and hard to transfer to another business, we suggest to make it worthwhile you need to make significantly more money by trading than what you would do in an ordinary job.

We are pretty confident that 95% cannot make such income via trading. Very few strike it rich as quants or automated traders.

Moreover, on the positive side, we believe those who are patient and understand that trading requires time and practice to learn and master stand a much better chance of success. You can’t approach the markets immediately without proper education and/or experience.

To avoid the pitfalls of trading, please ensure you have the mindset and education needed. Moreover, our experience indicates automated traders stand a better chance of success.

How much money do you need to be a quant trader?

You don’t need a a lot of money to be a quant trader and there is no minimum requirement. However, if you’re an American retail trader, you need at least 25,000 to avoid the Pattern Day Trader definition, restricting day trading.

We regard this as the bare minimum unless you are a prop trader. Your balance has to be weighed against the risk on your overall equity.

What is a realistic return for a quant trader?

A realistic return for a quant trader is close to zero or below, based on averages, but if you’re good you can probably make from 10 to 15% annually. Anyone making more money than the average return for the leading stock market indices is likely to get money thrown after them. Anything over 10% annual returns is excellent. Leverage can magnify the return. But as leverage increases, so does the risk of ruin in trading.

Your max drawdown is the main issue that needs to be studied. Can you tolerate a 25% drawdown? Most quan t traders can’t, and they fold after a string of losses.

Unfortunately, the future is uncertain, and a low historical drawdown is no guarantee for low future drawdowns. To a certain extent, all quant strategies are curve-fitted to past data. Your aim is survival, and a return of 20% on the equity, using small doses of leverage, is a reasonable goal for any successful quant trader, in our opinion.

Be aware that you need to pay taxes along the way, limiting the return significantly unless you have a tax-deferred account. Moreover, if you manage to be a superstar and average 25% for several years, you might face problems executing your strategies due to size.

It depends on the instruments you are trading. 25% annual returns double your balance every three years! We would say this is pretty good.

Can a quant trader make money every week/month/year?

A quant trader can’t make money every week or month but should aim for positive annual returns.

As a quant trader, you can’t expect to be profitable every day, not every week, but you should aim for 10 positive months per year. Every trader faces periods of unprofitability, for example, when volatility dries up, and you’ll experience periods when you don’t make any money. The more volatility in the markets, the more prey for profitable traders.

You can’t expect to be profitable every week or month. If you ever see a vendor or strategy that promises weekly gains, you can be sure it’s curve-fitted.

The markets change all the time, and even though you find some sets of rules that have worked well in the past, the performance will deteriorate over time and cause longer losing periods going forward.

This is an inevitable part of trading that needs to be accepted. The best remedy for this is to trade many different automated systems and make sure you always work hard on development, especially during good times. Good times never last; they inevitably end.

How does a quant trader get profitable every month?

A quant trader gets profitable by trading many uncorrelated strategies. We have often said that most traders spend too much time tuning a few systems to make them “perfect”.

However, a famous investor once said that most traders ruin good trading strategies by trying to perfect them. Many strategies might not be so good on their own but can still add value and diversification to a portfolio of trading strategies.

Can you get rich by quant trading?

To get rich by quant trading we provide you some “tips and tricks” of what we consider the essential factors in successful quant trading.

The number of trades

The number of trades you take has a significant impact on your returns. You need to turn around your capital as fast as you can.

Risk level

The correlation between risk and return might not be obvious.

However, as a rule of thumb, you can expect to make more the more risk you undertake, balanced against the risk of ruin. Risk management is an extremely important issue in trading.

The number of strategies

The more strategies, the more opportunities, sometimes based on opposing logic, like, for example, trend-following strategies vs. mean-reversion strategies. These two types of trading strategies typically work pretty independently of each other.

Can you execute your quant strategies?

Even the best strategies worldwide will not help you if you are liable for behavioral mistakes. Evidence suggests retail investors sell during a panic and buy into a frenzy. Moreover, many lose faith in their systems and strategies after a period of losses, just moments before it turns around. The potential cognitive mistakes are almost endless.

Have other sources of income

To succeed, you need to trade without stress and keep your emotions in check. You need detachment to money. Other income sources will likely free your mind if they can pay most, if not all, of your fixed costs. If trading profits are supposed to pay your bills, you will likely be stressed and make forced trades. Do yourself a favor and never trade without other sources of income.

Acquire trading education

The best advice is to partner with a trader with a proven track record. Not only can you develop strategies, but you can also learn how to develop the required mental skill set. One-to-one training is invaluable.

Understand your motives

Most people don’t say no to riches. However, money shouldn’t be your motive for trading. The more you enjoy the everyday tasks of trading, the more likely your success is. Detachment from money is essential. Furthermore, setbacks are part of the game.

Know your personality

This is very important. The more you know about your strengths and weaknesses, the better. What Is The Best Personality Type For Trading?

Start trading small

The University of Trading has lasted for many years, and we recommend starting small and increasing in size as you get more experience. You don’t get rich overnight – only lucky gamblers do.

Focus on the process, not the outcome

A good outcome does not necessarily result from good decisions and vice versa. Ensure you don’t fall prey to what Annie Duke calls “resulting”. A good trading edge plays out over many trades.

Never relax

The market is always in a transition, and a profitable period never lasts long. Make sure you have a plan B.

So, to sum up, can you get rich by quant trading?

The answer is yes, but it’s pretty unlikely. Quant trading is scalable, and you can scale it pretty fast if you are good. However, quant trading is a tough job where you can never rest on your laurels. If you have some good trading strategies, you can’t expect to last long!

How to get rich by quant trading – 5 steps

We end the article with a suggestion on how you can start making money by (and get rich?) quant trading. We address 5 steps:

Step 1: Backtest

Readers of this blog should be no surprised that the first step we recommend is to start backtesting. How do you know if you are on the right track if you have not backtested your trading strategy?

We believe the number one reason most traders fail is that they lack a positive statistical edge. No money or risk management rule can ever help you turn that deficit around.

If you haven’t done it yet, make sure you backtest all your strategies. If they’re not specific enough to be quantifiable trading rules, skip them (unless you have a trading journal that backs them up).

Step 2: Trade many different markets

There is power in automation and mechanical trading, so you use it to your advantage.

Stop looking for the single best trading strategy, and instead utilize the power of diversification and non-correlation. Make sure you trade different time frames, asset classes, and market directions (long and short). Yes, short strategies are both hard to find and trade, but adding just one or two can greatly improve your overall portfolio (is it possible to make money shorting?).

Strategies that complement each other might be much more useful for your trading strategies than the one with the best equity curve.

Step 3: Know yourself

It often sounds a like a cliche, but it’s true that if you don’t know your strengths and weaknesses, you are highly likely at a disadvantage.

  • Are you willing to pull the trigger after 6 losses in a row?
  • Do you continue trading after a 20% drawdown?
  • Are you willing to trust your numbers and just push the buttons?
  • Do you accept that trading is all about making bets on an uncertain future (and the future is highly volatile)?

Very few have any idea about this when they start, but you normally find out the hard way, which is good as long as you learn and adapt.

As a trader, you are not a forecaster. You are not supposed to predict; you should just let your automated systems guide you.

Also, knowing yourself includes limitations on capital and skills and the above-mentioned risk tolerance.

Step 4: Be meticulous – keep records (manually)

There is an expression that says the devil is in the details. And in short-term trading, which is mainly a zero-sum market (is the stock market a zero-sum game?), only small changes can ultimately guide you to your desired destination. A ship sailing just one degree off when crossing the Pacific will end up hopelessly off its destination.

The same goes for trading: If you can improve just a tad every week, it’s worthwhile.

For example: we are punching our trade log manually every day into a spreadsheet. Why do we spend “unnecessary” time on this when you can export or cut and paste?

We do it manually because it helps us spot details we otherwise wouldn’t see. Mind you, when we were day trading stocks a few years ago, it meant punching hundreds of trades (daily).

Keep a trading journal

Always keep a trading journal. It doesn’t have to be complicated, but make sure your trades are easily accessible for analysis. We have made a trading journal example available for your convenience.

Feedback loop

Annie Duke has written a fantastic book called Thinking In Bets that all traders should read. Trading is all about betting! You need to make a sound framework.

Step 5: Interact with other traders – get ideas

Two traders (normally) think better than one. For example, this website is a cooperation between two traders that accidentally met at a trading shop in Arizona 20 years ago. One of the main reasons that we are still trading is that we have been blessed with ideas and knowledge from other traders. If not, we are confident both of us would have been working for a paycheck by now.

We have compiled some of our experiences in a separate article called stock market lessons.

You are unlikely to make it alone unless you are a maverick. And most are not mavericks, but rather the contrary.

Be active on discussion forums. Be helpful to others, and you most likely get some help in return.


– Is quant trading profitable?

Quant trading can be profitable, but the majority of those who start trading fail or do not succeed. Short-term trading is considered close to a zero-sum game, requiring an excellent business plan to make money against other market participants.

– How does scalable vs. non-scalable businesses relate to short-term trading?

Short-term trading is categorized as scalable, and it often has a binary outcome – traders either become successful and rich or face losses. The scalability of trading allows for higher returns on equity compared to long-term compounding.

– What percentage of quant traders are profitable?

Determining the exact percentage is challenging, but a conservative estimate suggests 90 to 95% of quant traders may not be profitable. Success requires patience, education, and experience in navigating the complexities of the market.

Related Reading: Quantitative Trading vs Algorithmic Trading

Similar Posts