Programming lets you test, improve and deploy your quantitative trading strategy. Go read about Expected Value and Kelly Criterion (this formula is aggressive, use with care to prevent overbetting).Īlternatively, we can run simulations to find the optimal betting size based on multiple potential outcomes of a trade. There is a statistical solutions for the two questions above. Is this a good opportunity? If yes, how much should we trade? ![]() Let’s say a trade wins 50% of the time with a 15% return, loses 40% of the time with a 10% loss and loses 10% of the time with a 100% loss. You need statistics knowledge to calculate how big or small an opportunity is, and to calculate how big your trades should be. In many cases, having knowledge of other specific domains is useful if we are trading products in those industries.įor example, understanding the weather and agriculture process is useful if you are trading coffee futures.įor most trading ideas, you just need high school level statistics. This gives us the skills to identify and find trading opportunities. Understanding finance, economics and how the market works is the most important part of quantitative trading. Finance gives us the trading idea, mathematics helps us quantify the opportunity, and programming helps us test and implement the trading strategies. What are the Key Components of Quantitative Trading?įinance, mathematics and programming. This allows us to predict the timber company’s earnings.
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