Using mathematical computations and number crunching to identify trading opportunities, quantitative trading strategies rely on quantitative analysis. In quantitative analysis, as the main inputs to mathematical models, price and volume are two of the more common data inputs. For most financial institutions and hedge funds, quantitative trading (trading using quantitative strategies) tends to be employed for transactions involving thousands of shares or other securities. While quantitative trading is frequently employed by retail investors, it is becoming more commonplace for institutional investors as well.
What is quantitative trading?
By and large, quantitative strategies invest in a portfolio of assets over time. The selection can be altered throughout the day (up to and including high-frequency trading) or over longer time horizons such as months. Each quantitative approach is often guided by a set of asset selection criteria. Regrettably, it is not easy to identify criteria that have a long-term beneficial effect. Additionally, these criteria vary according to the time horizon. Certain criteria operate well when traded quickly during the day, such as news-driven strategies, while others work best when traded slowly, such as value-driven strategies.
Quantitative traders use contemporary technology, mathematics, and the availability of comprehensive datasets to make logical trading decisions to maximize their profits. To apply a trading strategy to historical market data, quantitative traders first construct a mathematical model of it, and then they develop a computer program that applies the model to the historical market data. After that, the model is back-tested and optimized. Providing that positive results are obtained, the system is subsequently put into operation in real-time markets using real money.
Quantitative trading to maximize profits
Price and volume are two of the most fundamental trading variables, and in many situations, quantitative analysis is as easy as examining those two figures. If the situation is more intricate, quantitative analysis may necessitate the examination of hundreds – perhaps thousands – of distinct elements. In today’s market, some of the world’s most successful investors rely on quantitative research to make educated trading decisions. For example, a hedge fund may include a quantitative trading branch that is committed to evaluating every deal. Based on this quantitative research, the hedge fund may be able to make billion-dollar trading decisions.
At a more fundamental level, a typical investor may research quantitative trading analysis on the internet before entering a trade. Because of the abundance of quantitative trading guidelines available on the internet, it is now possible for regular investors to execute quantitative trading methods on portfolios of any size. Even at the most fundamental level, all transactions entail some form of quantitative analysis of some sort. Any time you use mathematics, statistics, or numbers to create a forecast about the future, you are engaged in quantitative analysis of some kind.
Quantitative trading in cryptocurrency
In many respects, cryptocurrency trading differs from traditional financial trading. In contrast to traditional currency exchanges, the markets are open 24 hours a day, seven days a week. Because it is still in its infancy, it has not yet been inundated by large bulls that engage in automated trading strategies. The volatility of the Bitcoin market is the most crucial aspect to consider. These markets have significant ups and downs as a result of a variety of factors, including legislation, public perception, technical developments, and so on. It may be inferred from the fact that the BTC-USD pair has fluctuated from as low as 98,000 Baht per Bitcoin to as high as 2-3 million Baht per Bitcoin in the previous two years.