Quant trading is a market strategy that uses mathematical and statistical methods to assess opportunities. This trading method is named quant due to its quantitative analysis models.
Traditional trading requires a human being to come up with different trading strategies. This trading method may lack space for human discretion due to specific rules.
Hence the model is said to be best, especially for those programs which aren’t easy to program on the computer.
If we compare quant trading vs traditional trading, then the one that has the possibility of human errors due to the reliability of their knowledge is traditional trading.
But yes, traditional traders make a lot of profits because their investment decision isn’t based on data analysis.
On the other hand, quant trading decides according to the mathematic and statistical models, easily reducing errors and giving outcomes that depend on market data analysis.
To fully undertand the quant trading vs traditional trading differences, let’s first undertsnad the basics, the pros and cons of each type.
1. Process And Methodology Of Quantitative Trading
Usually, quantitative trading work with various trade inputs like price and volume. However, there isn’t a fixed pattern of share price fluctuation, and all of them have a different cyclic pattern.
So on those trends, this is the way that helps to cash quantitative techniques.
For mathematical model building, price and volume are used as trading models. That is why this technology is considered more profitable and faster trade execution.
Finally, it’s time to build a mathematical model based on historical data. After the model gets completed, it is tested and then evaluated.
The result of these post-implementation techniques is later used for market trading. Traders also use this method to make investigating decisions. If compare quantitative trading vs algorithmic trading, both have lot of commonalities as well.
2. Advantages Of Quantitative Trading
Quantitative trading syatems lets you change complex patterns into numerical numbers through measurement and research. So its advantages are:
- This trading type will let you calculate the chances of a profitable trade.
- You can affect trading judgments of effective analysis and monitoring on a specific stoke.
- Computer algorithms are used to make more effective trading decisions.
- It’s the best way to promote rational decisions by removing the emotion of fear and greed.
3. Examples Of Popular Quantitative Trading Strategies
Example of the most popular quantitative strategy involves momentum trading and trend-chasing. The traders who use trend-chasing algorithms are most likely to use technical indicators, which include strength indicators and moving averages.
After that, traders are executed depending on the set parameters they follow. This strategy is said to be relatively straightforward for most traders because simple moving averages are easy to use as a main indicator by many quantitative traders.
1. Process And Methodology Of Traditional Trading
Every type of basic to high-level trading is included in traditional trading. Traditional trading systems work just like simple retailer trading in which products are sold directly to customers by the store owner.
All the customer’s order the product or good present in the current stock; there isn’t any future booking.
Depending on the season and requirements, the products are in high demand. The principle of this trade is short, specific, and direct.
There are only a few traditional traders who make timely delivery of products. The flow of cash in this type of trade is short and instant.
2. Advantages Of Traditional Trading
Generally, only a human being can guess about the market power by only looking at who is buying or selling. And this makes it easy for traders to trade at high prices according to the market power.
- Traditional trading connects the trader with the customers at a personal level. Hence, connecting with customers is more organic.
- Traditional trading is best for building credibility because when a customer sees the product physically, it automatically increases the credibility of that product.
- The promotional materials of traditional trading are reusable and recyclable because you don’t have to spend 3 to 4 times a day posting pictures and videos. On the other hand, all the hard-printed copies can be used easily for many different purposes.
- Traditional marketing is the best choice to extend your targeted audience and appeal to a diverse audience.
- It’s a sort of trading system in which peoples are already aware of all the steps for buying, so buyers don’t have to worry about anything and get easy access to the material they want.
Related: Technical Trading Strategy
Comparison of Quantitative and Traditional Trading
Pros And Cons Of Each Approach
Both of the trades differentiate from each other. That is why quantitative and traditional trading has various pros and cons. Let’s look at each trading system one by one to get to know which one works better.
Here are some of the pros and cons of traditional trading:
Pros Of Traditional Trading:
- There is a strong history of profitability in traditional trading methods. So every trader wants to make money right. Indeed it’s the best method to do with.
- This trading method saves you costs because you don’t have to pay extra associated social trading fees or copy services here.
- In the traditional trading method, you can control all the trading strategies and don’t need any intermediary. You can use real-time data to make trading decisions, resulting in good trade setups.
Cons Of Traditional Trading:
- In traditional trading, you can roam as many trades as you want. This can result in rogue.
- In traditional trading, you are responsible for every decision, which can result in bad trading ideas and addictive behavior.
- There are a lot of trading errors in traditional trading because you are executing the trade manually.
- In the case of setting your strategies, now 100% of the risk is on your shoulders.
- There is no guarantee that you will make money. Research says that about 80% of traders quit in only two years.
Let’s discuss the pros and cons of quantitative trading.
Pros Of Quantitative Trading:
- Quantitative trading is all controlled by computers, so there is no worry about human errors. Because the computer double check every smallest detail to minimize the chance of judgment errors.
- You don’t require human intervention because, in this type of trading, there is only a need for a human in the development process; as soon as the strategy is ready, the computer controls everything.
- About 100 strategies are analyzed in split seconds. So there is a wide range of capabilities.
- Quantitative strategies allow you to backtest, so these backtested strategies enhance your confidence.
- There is no need to sit in front of the computer and monitor the trade; this will save you time so that you can spend on additional income. Which means it lowers your cost and increases efficiency.
- The order entry speed in quantitative trading is much higher than in traditional trading. Because the order scan and sent out in under one-hundredth second.
- Quantitative trading lets you set consistent and disciplined ways to plan and trade.
Cons Of Quantitative Trading:
Unfortunately, there aren’t only advantages of quantitative trading, as all of your trading systems depend on technology, so there is only one issue, and your complete portfolio can be a disaster.
- Curve fitting and optimization are the biggest pitfalls of quantitative trading. Although in quantitative trading, we completely rely on historical data, which can turn all are strategies resulting in chance and randomness. Out-of-sample tests indeed element the curve fitting, but they still can’t eliminate the chance of randomness.
Potential Future Developments In The Field
We all know everything is getting developed day by day. This means there will indeed be a sort of development in quantitative trading. Here we will discuss the development in the field.
Quantitative Trading In Future:
In the past, you needed a good computer science or software development background to invent something.
But now, many online brokers have different drag-and-drop tools that enable users to work easily.
Nowadays, all traders know properly about trading bots and how to create them. Apart from that, different video tutorials are available for guidance.
Trading is the best way to make income. Above, we have discussed two different ways of trading. Each of them has its advantages and drawbacks.
Indeed, neither of the ways is perfect, so you have to thoroughly study each method before trusting.
In traditional trading, everything will be in human control compared to quantitative trading; all the trading systems will be under computer control.
The computer control system, quantitative trading, indeed decreases the hum and errors. And trading, which is in the control of human, have a higher probability of trading errors.