When it comes to quantitative trading, many people think of an institution that can make dozens or hundreds of transactions within 1 second, which has a great speed advantage. In fact, this is only one type of quantitative trading: ultra-high frequency quantitative trading.
What is quantitative? When we do scientific analysis, we generally have two methodologies: qualitative and quantitative. When extended to the investment field, they are divided into value investment and technical analysis. There is no right or wrong, good or bad between the two. There are only different research methods for the market. Quantitative trading is the evolution of technical analysis. Because computers are good at processing data, they are generally executed by computers. It gives people the feeling that quantitative trading is automated trading. In fact, quantitative trading does not necessarily have to be run by computers.
In the field of ultra-high frequency quantitative trading, general institutional traders will invest heavily in expensive equipment to strive for speeds within milliseconds to obtain better price advantages. This kind of trading is not the same concept as the trading we usually understand. It earns the spread between the market and provides liquidity in disguise. This profit model is like providing liquidity to the market and obtaining "service fees".
In addition to ultra-high frequency quantitative trading, the execution of transactions in the field of low frequency quantitative trading can be computer or manual. Not only individuals can participate in this field, but there are also six major advantages compared to institutions.
First, the amount of personal funds is relatively small. Small funds mean less impact on the market, and the effectiveness of quantitative strategies is high, and the strategies will not be invalidated due to market capacity restrictions.
Second, personalized risk preferences. Because it is an individual transaction, risk preferences and profit expectations can be formulated according to oneself, unlike institutions that sometimes have to close positions and have to give up opportunities.
Third, time is relatively loose. Institutions have certain time management, and traders as employees have holiday arrangements. Even if they use automated quantitative trading systems, sometimes they will be shut down due to scheduling issues.
Fourth, loose performance requirements. When individual investors execute their own quantitative, they often know that some market conditions may be unfavorable to their strategies, but they can continue to wait for opportunities, while institutional investors often have certain performance requirements, and some institutions also require that a certain rate of return must be achieved within a certain period of time, which will restrict the actual strategy.
Fifth, loose supervision. There is basically no supervision on individual investors, and they can execute completely according to quantitative strategies. Institutions have strict management and scheduling of funds, and the actual utilization rate of funds is often lower than that of individuals.
Sixth, fast decision-making. When institutions make important decisions, they often have to go through a lot of group discussions, approvals from multiple leaders, and some other unfavorable human factors that may cause them to miss the best opportunity. When we execute a quantitative strategy, the correctness of individual decisions is often very high, and we can seize better opportunities.
In short, in the field of low-frequency quantitative trading, we use a quantitative method for trend determination and buying and selling prices. In order to successfully capture trends, a large number of trial and error transactions will also be carried out. As long as we lose less money when we lose money and make more money when we make money, we can make a profit with a positive expected value in the end, and then we can achieve the accumulation of profits by repeating this process frequently.