What does quant traders see?

04.07.2018 / 17:59

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More and more quant traders find their place on Wall Street - market players whose approach to trading uses statistics and mathematics. These traders have a completely different way to building their strategy. They trade more often with very small volumes in many different ways, which diversifies the risk. However, the advantage of quants lies in testing the strategy back in time or the so-called backtest. This is the part where computers actually have a great superiority over human abilities.

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The most up-to-date backtest programs gives you the ability to change the spread, slippage-a, and other elements of the chart at predefined limits. An additional option is for slight changes in the graph itself with a probability that can be determined, which is on average 10%. Changing the past data graph allows us to determine how long the strategy would be sustainable in future market conditions or the so-called robustness test - endurance test. Here's how it looks:

The strategy shown would perform well and under changed market conditions against historical data. This model would have a place in one of many models of a quantum trader, while a model like the next would be deleted instantly:

The blue bold line shows backtest data of the historical data, while each of the colored lines shows the possible result with slight changes in the graph, execution speed, and spread variations. It is clear that the strategy of the first picture would be much more successful in future market conditions.

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Another element that is extremely useful in quant models is the breakdown of day to day transactions, hourly, type (buy / sell).

For example, a completely well-tested strategy will give you much more realistic expectations of potential gains in implementing the strategy in practice.

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What does quant traders see?

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