As a trader, you don’t want to do the hard work of monitoring the screen all the time and analyzing price movements looking for trade setups. This manual way of trading can be extremely hard and even prone to mistakes based on emotional and psychological biases. Moreover, there is a limit to how much data…
You’ve probably heard much about mindset and risk management if you’re an aspiring trader. While these are essential factors in successful trading, they’re not the only things you must focus on. In fact, our opinion is that too many traders put too much emphasis on these aspects and not enough on something even more critical:…
In your day-to-day life, before you buy anything — a mobile phone, a house, or a car — you would want to check its features and history to know if it is worth your money. That also applies to trading, but here, what you check are your trading strategies. With a wide range of markets…
News and Trading With the availability of online news sources, including social media and trading forums, we consume a lot of irrelevant news that has no value to our trading success and may even be toxic to our minds. How important is news to trading? As traders, we know that certain news can help us…
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….
Many of the best traders use some kind of mechanical trading strategies and rules when trading. “Mechanical” implies that the rules are based on objective rules, usually quantified data. The trader should follow these rules precisely without hesitation or emotion. In this respect, mechanical trading is the complete opposite of discretionary trading. In this article,…
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…
Below we have listed articles that are related to quantified and mechanical trading. Quant trading articles: Mechanical trading articles: Backtesting articles: Proprietary trading: General articles about quant trading (mechanical trading):
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…
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…
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…
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…
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…
Does quant trading work, and if so, how can you make quant trading work for you? Quant trading (quantitative trading) might sound complicated, but don’t let the terms scare you away from trying or digging deeper. Quant trading can be very profitable if done correctly. Quant trading does work. We believe quant trading is the…
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…
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 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…
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 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? 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…
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…
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…
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”…
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…
In one of my current strategies, I was filled en masse today. Usually, that strategy gives me on average 4 fills a day, but today I got 59 fills. Quite unusual! So I stopped the program because I suspected something was wrong. Having continued the program I theoretically would have got over 100 fills/stocks. When…
I record every trade I make in Excel. I categorize them into short/long, which day of the week, date, where the market opened, how the market performed the day before, how the stock performed the day before, average volume in the ticker, P/L in the ticker, and which strategy. My recommendation is to have a…
These days computer and algo trading do most of the volume in the US. Stocks move very fast and at a very thin volume. This creates some nasty challenges for the individual daytrader. Either you have to compete on the same terms as them (or trade with them), or you have to do something different….
