What Are Quantified Trading Strategies? (Concept 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 occur by chance. We use backtesting to measure profitability.

This website is all about quantified trading strategies, often called algorithmic or quantitative strategies. But what exactly are quantified trading strategies?

Quantified trading strategies defined:

The aim of this article is to explain the basic concepts of a quantified trading strategy and how you develop a trading system.

Quantified trading strategies use the scientific method

The rules of the trading strategy are 100% quantified and thus based on the scientific method. The rules are strict and not open to discretionary judgments or anecdotal evidence. When a trading strategy has passed all backtesting and is ready for live trading, the trading signals are mostly passed on to a trading software/platform that executes the trading automatically, also called a trading robot, but you can of course enter buy and sell orders manually.

Other labels for quantitative strategies are algorithmic strategies or “quant” strategies. Basically, all labels involve the same elements in their methods.  A quant is simply a trader that is relying on quantified strategies and automatic trading.

We at Quantified Strategies have built trading strategies based on our own hypothesis for close to twenty years. The strategies are developed on strict mechanical rules that have been successful in past data, and which we believe offer profitable opportunities in the future.

We offer both free and paid services:

The development of quantitative strategies is not something new but has risen with steady improvements in computer power. Even Benjamin Graham, the founder of value investing, to some extent used strict quantitative models to find undervalued securities.

Since then the advent of computers has made Graham’s methods almost useless because computer power finds those mispricings in seconds. Sooner or later, most strategies get “arbed” into oblivion. Any quantified trading strategy that gets too popular is destined for the graveyard at some point in the future.

You can make your trading strategies complex or simple. We believe in simplicity.

However, it takes a significant amount of time to develop the skills to both test and trade strategies.

Patience is required. This is a skill like all other skills required for a job, and just like no one expects a recruit to become a carpenter overnight, you can’t become a trader overnight. You can expect years of trial and error to really get good at what you are doing.

Some elements of a quantified trading strategy:

So what exactly do you need to do to develop a quantified strategy? Below is a list of what is most relevant to look at:

  1. Make sure you have many hypotheses/ideas to test at all times. Brainstorm and write down ideas regularly. Keep your ideas in a trading journal and for your convenience, we have made a trading journal example.
  2. Which markets are you going to trade? Why do you want to trade this market?
  3. Which timeframe should you trade? The time frame in trading is important. Scalping (we believe