What Percentage of Trading Is Algorithmic? (Algo Trading Market Statistics: Growth, Trends, and Forecasts)

Since the emergence of the internet, algorithmic trading has come to dominate the financial trading world, but what percentage of trading is actually algorithmic? About 60-75 percent of overall trading volume in the U.S. equity market, European financial markets, and major Asian capital markets is generated through algorithmic trading, according to Select USA, in 2018….

Mechanical Trading Strategies – Advantages with Mechanical Rules and Edges

A lot of the best traders use some kind of mechanical trading strategies and rules in their trading. “Mechanical” implies that the rules are based on some kind of objective rules, usually quantified data. The trader should follow these rules exactly without hesitation or emotion. In this respect, mechanical trading is the complete opposite of…

How To Optimize A Trading Strategy? – (Example and Definition of Optimization & Backtesting)

Is strategy optimization good in trading? Are optimizers error maximizes? Do small input errors result in large output errors? Strategy optimization in trading is good if done correctly and below you can read how to optimize a trading strategy. Optimization has negative associations for many traders, just like curve fitting, but optimization done correctly can…

Algorithmic trading Guide

Quant trading, algorithmic trading, mechanical trading, and quantified strategies: 26 trading lessons learned after 20 years of full-time trading How Jim Simons’ trading systems made 66% a year (The Medallion Fund) 6 reasons why backtesting works (Why backtesting is not a waste of time) Can you get rich by quant trading? (Tips and tricks for…

Data-Driven Trading Strategies — What Are They? (Backed By Data)

Discretionary trading is becoming increasingly difficult and even unprofitable, as the markets have become more efficient. This is why smart traders now make use of data-driven strategies. But what are they? Data-driven strategies are essentially a method of trading that is based on data analysis and automated trading using computer algorithms. That is, trading algorithms…

Curve Fitting Trading – Why It Could Break Your Trading Career (What is it? – Backtest)

You have probably read about curve fitting in trading books, trading magazines, and social media. The danger of Curve fitting is ubiquitous when designing trading strategies. It has the potential to ruin your trading career if not dealt with correctly and can be hard to notice, even for traders with decades of experience. In this…

What Is Monte Carlo Simulation In Trading And Investing? (Trading Simulation)

Monte Carlo simulation in trading and investing is a tool frequently used in blogs and backtests. Can Monte Carlo backtesting be used to measure risk and uncertainty? Yes, it turns out you can use it in the financial markets: Monte Carlo simulation and backtesting in trading (and investing) is a statistical tool to measure uncertainty…

Backtesting a Trading Strategy – 6 Reasons Why A Backtest Works (Historical Analysis Is Not A Waste Of Time)

Does backtesting a trading strategy really work? A backtest is a tool that not only small retail traders use but also big institutions. The world’s most successful hedge fund, Jim Simons’ Medallion Fund, uses backtesting continuously to develop new strategies. Why? Backtesting a trading strategy works! Backtesting a trading strategy works because you can falsify…

What Is A Good Equity Curve? – Profit & Loss Curves Best Practices

If you have come so far in your trading that you rely on backtesting to validate your trading strategies, you definitely are ahead of the masses. Most people haven’t understood that all strategies and patterns they want to trade need to be validated before they may go ahead and risk any real money. However, while…

Mechanical Trading Strategies Vs. Discretionary Trading Strategies

Mechanical Trading Strategies Vs. Discretionary Trading Strategies When it comes to trading, you are either using mechanical trading strategies or trading at your discretion. What is the difference, and which is better? Let’s find out. Mechanical trading strategies refer to automated trading using trading algorithms with pre-set instructions. The primary purpose is to remove as…

Out-Of-Sample Trading Tests Explained (What Is Out-Of-Sample Backtesting?)

Most traders test their trading ideas on all their available data and conclude “yes or no” to go live with the strategy. But it’s a major problem with this method: You test on known data – not unknown. Almost all backtests are to a certain degree curve-fitted – mostly unconsciously. The missing element is out…

Survivorship Bias In Trading And Backtesting, Trading And Investing (How To Avoid It)

Survivorship bias in trading and backtesting is about the things we don’t see or to a certain degree ignore. We tend to see the winners and not the losers. Unfortunately, this is very typical in trading and backtesting. To avoid this, you need to understand what survivorship bias in trading is. In this article, we…

Can You Get Rich By Quant Trading? (Tips And Tricks for Quant Traders)

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 in a hurry. Is that likely…

How To Become A Successful Quant Trader (Can You Be A Quant?)

How to become a successful quant trader To become a very successful and profitable quant trader is difficult and takes years of experience with trial and error. It’s more important that you possess trading skills than coding skills. Connecting to already successful quants is a huge advantage. Having the interest and knack for numbers is…

What Are Quantified Trading Strategies? (Including A Trading Strategy)

What are quantified trading strategies? Quantified trading strategies are strategies based on finding inefficiencies in financial markets based on numbers, math, and statistics. This is done by studying historical data from the past, mostly time series of the price of financial instruments, and the aim is to detect patterns and relationships that are unlikely to…

Common Mistakes In Quantified Trading (Quantitative Trading)

Automated trading has an almost endless list of issues that can turn your trading into a disaster. For automated traders, you face another issue in addition to the technicalities of trading: screw-ups with software and programs. Automated trading has many advantages, but the main advantage is the potential mistake of the program sending many wrong…

Data Mining And Boredom (The Same Strategy Can’t Be Used On All Stocks)

Why should, for example, a 3-day RSI work on both PG and HAL? Read below for why it makes sense to differ strategies among stocks. I saw a discussion on Twitter the other day about data mining and backtesting. Put short, one trader trades different strategies for different instruments/stocks. The other trader believes this is…

The Importance of Good Data Sets When Backtesting (Garbage In Equals Garbage Out)

Good data is important in trading. After ten years of day trading, I have experienced the expensive way the importance of good data. The famous saying “garbage in, garbage out” is indeed true. Your backtest is only as good as the data you are testing on. Make sure you are backtesting on reliable and “clean”…

Disadvantages Of Backtesting (Why Backtesting Doesn’t Work)

You rarely manage to find trading strategies that perform better in live trading than in backtests. Why is it so? This is because of the disadvantages of backtesting. You need experience in backtesting to avoid the many pitfalls along the way. In this article, we look at the disadvantages of backtesting. There are many reasons…