Quant Trader’s Toolkit: An Overview

Quant Trader’s Toolkit — Full Series Links:

• An Overview (you are here)
• Free and Fast Fundamental Data from SEC

So You Want To Be A Quant?

The above is a picture from the peak of Mount Pilatus, overlooking Lake Luzerne, in Luzerne Switzerland. Put it on your wall and know that if you are disciplined and honest with yourself, you will be able to get there one day. Consider this moment your fork in the road; you only have two options:

1) The Paved Road

Others claim to have walked this road before you. They’ll tell you how hard they’ve worked to pave it for you. And for a small fee they’ll guide you all the way to the land of milk and honey (or bitches and money if that’s more your style). That road is a mirage. If you have previously fallen victim to that mirage, welcome. This is your chance to change your trajectory. If you are currently on that road, cancel your subscription and turn back. Some of you will undoubtedly choose that road in the future. Save this article to your reading list so you can return here when you realize what you’ve done.

2) The Unpaved Road

This road looks challenging. It is. This road is paved with delayed gratification. Each member of our team is at a different stage of the journey. Each of us and each of you must pave your road individually. People who are further along can offer advice to try to point you in the right direction (as we are attempting to do now), but ultimately, we all must pave the road for ourselves. Some lessons can be taught, while others can only be learned through trial and error. Plant the seeds of success now by building a solid foundation of knowledge and skills, and you will be able to harvest the fruits of your labor in due time.

The Process

The first step in beginning to pave your road toward quant status should be reaching competence in calculus, linear algebra, and probability and statistics. Each mathematics text you master will further separate you from the pack. If you want subjects you should attack after those leave a comment and we’ll be sure to point you in the right direction!

Building a profitable quantitative trading strategy involves several steps, which include:

1. Identifying a trading idea: The first step is to come up with a trading idea that can be quantified. This could be based on technical or fundamental analysis, market data, or a combination of these factors. Your knowledge of the math topics mentioned above will help you look at the market as the culmination of many quantifiable and exploitable functions. This perspective will generate your best ideas.
2. Collecting and analyzing data: Data comes in many forms, with the most basic form of financial data being Open-High-Low-Close (OHLC) price data being widely available from free sources such as yfinance. As your progress through your journey to become a quant you should start working with other kinds of data. OpenBB’s Python SDK is a free resource that can provide you with access to many other forms of financial and nonfinancial data. Once the idea is identified, the next step is to collect relevant data and perform an analysis. This may involve using various statistical methods, data visualization techniques, and machine learning algorithms to identify patterns and trends in the data.
3. Developing a trading model: Based on the analysis, a trading model is developed that outlines the specific entry and exit criteria for trades. This model should be backtested using historical data to ensure it is profitable and robust. Remember, success on a backtest does not mean that your strategy is a good one. Backtests should be used as a method of exposing potential flaws in your idea before real money is on the line. Check out this article to see how backtesting should be used.
4. Implementing the strategy: Once the trading model is developed, it is implemented in a live trading environment. This may involve using a trading platform or API to automate trades based on the model’s criteria.
5. Monitoring and refining the strategy: As the strategy is implemented, it is important to monitor its performance and refine it as needed. This may involve adjusting the model’s parameters, adding new data sources, or tweaking the trading rules to improve profitability.
6. Risk management: Throughout the process, risk management is critical to ensure that losses are kept to a minimum. This may involve setting stop-loss orders, using position sizing techniques, and monitoring overall portfolio risk.

What You Can Expect From Us

The Quant Trading Room is your one-stop-shop for all things quantitative. In the Quant Trader’s Toolkit Series, we will be introducing essential tools and techniques that every quant should be familiar with. We will begin with basic data gathering then progress all the way through advanced risk management techniques. Outside of this series, you can look forward to articles that cover everything from alpha drops to strategy walkthroughs to quantum computing.

“It ain’t what you know that gets you into trouble. It’s what you know for sure that just ain’t so.” — Mark Twain

Mark Twain may have said this quote, but I don’t know for sure, hopefully no lawyers come after me. What I do know for sure is that there are lots of things to know in the world of quantitative finance. The Quant Trading Room will expose you to and educate you on all of these topics. Eventually, you’ll only have to worry about getting in trouble with your accountant for not sending him your tax paperwork fast enough.

Please feel free to comment with any questions, concerns, or topics you would like covered in future posts!

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Photo by Sam Dan Truong on Unsplash

**THIS CONTENT IS NOT FINANCIAL ADVICE. IT IS STRICTLY EDUCATIONAL**