The Risk of Trading: Mastering the Most Important Element in Financial Speculation

WHAT IS QUANTITATIVE ANALYSIS?

Look up any definition of quantitative analysis and you probably would nod off sleeping before you could finish reading the definition. In broad terms, quantitative analysis is a process of measuring things using data and statistical information. We can quantify the results numerically, thus the term's root name. It can lend purpose to determining past performance and common elements of any type of result as well as help one forecast or predict future results. Any trader who uses technical analysis or charts to determine trading activity is practicing a form of quantitative analysis. Charts are merely a visual to communicate historical data. Even technical indicators such as moving average convergence/divergence (MACD), moving averages, and candlesticks are taking quantitative data and presenting it in a format that allows us to allegedly determine buy and sell opportunities.

One of the true benefits of a quantitative analytical approach to trading is the opportunity to generate greater consistency in your trading decisions. In other words, “quant” traders do not base decisions on what they think will happen to future price movements. They solely rely on historical data to provide information and direction to future trade decision making. When used effectively, data-driven decisions can aid in taking the emotional elements of trading out of the trading plan. Trading with the human elements of fear and emotion has brought down the best of floor traders ...