What Is Quantitative Trading and Who Can Do It

What is Quantitative Trading?

Quantitative trading is a term which indicates removing all human emotions from the investing or trading process. Basically have a computer system make all the decisions for you; you just pull the trigger, so to speak.

Emotions are your enemy when it comes to trading or investing in the financial markets. Fear and Greed are the two arch enemies which fuel trading. For the most part anyway. So can we really trade without any emotional involvement? That’s the question we are going to try and answer below.

Analyze your trading time frame

  • Day Traders are usually stuck in front of your computer screen and watching each tick on the market as it ticks by. This can cause you some major headache and it will be almost impossible to contain fear or greed.
  • Swing Traders often times have a trading “system” which allows them to place trades and wait for the “prediction” to occur and then exit out of the position. Usually they have safeguards in place by placing a “Stop Loss” order together with the order.
  • Long Term Investors will be the ones that are involved the least on the day-to-day operations of the markets. However their emotions are not easily contained if the stock goes into a downward spiral due to some bad news effecting the company.

If you are a Day Trader, unless you have piles of cash which you don’t mind losing, then you are the least likely to benefit from Quantitative Trading or Investing. Not because you don’t want to, but because it will be harder to contain fear of losing more money, or being greedy and earning more money.

Swing trading strategy, in my opinion, is most likely to succeed in quantitative trading. Usually swing traders have a plan of when to enter a position, where to place the stop loss order and when to exit or place a trailing stop. If they just trust their system to do it’s thing, they should be OK.

Long term investors are the least likely to be able to take advantage of Quantitative Trading or Investing. Simply because they rely too much on the outside noises such as news releases, advice of their broker or the hot tip they got from someone who claims to know a lot about the markets. They react to every little thing.

In my opinion, only people who can trade or invest quantitatively are the ones who have a plan, stick to it and have enough cash to support their draw downs. It becomes harder and hard to make any money trading and keep your emotions out of your decisions if you have less and less money each day to trade or invest with. But if you have a system in place, and are able to sustain initial losses without bankrupting you, you will do fine. Otherwise, you just simple have to accept the fact that emotions are part of the game, for the majority of the game, and that you will be losing money, for the most time.

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