Quantitative trading is a type of trading that uses mathematical models to analyze the change in price and volume of securities in the stock market. The system consists of four major components: Strategy Identification; Strategy Backtesting; Execution System and Risk Management. In this post, you will learn how to use the best auto cryptocurrency trading robot called Royal Q to set up quantitative trading.
What Is Quantitative Trading?
It means using mathematical models for analyzing the change in price and volume of securities in the stock market. The market is often referred to as the electronic stock market, which is called the capital market. A stock market has several participants who trade securities that trade in the stock market and it’s based on several theories. It has a complete history and if certain patterns occur it’s called a trend. The trend that has happened has a certain pattern that will be observed after a period of time or in a specified period. There are many theories about stock market movements that develop over time. One can try to predict those patterns or trends by analyzing the past data and trying to get clues on the market.
Components of a Quantitative Trading System
A trading system comprises the following elements: strategy identification; backtesting; execution system; and risk management. Strategy Identification is the process of studying the data sets, earnings and the capital structure of different companies to predict how those companies will do. Strategy Backtesting involves choosing a historical data set for the study and running a forecast for the historical data set using models. This process can be helpful in determining which stocks are likely to perform best during future periods. Execution System is the software that predicts when a buy or sell order should be placed in the stock market.
The first step in quantitative trading is to identify which strategy you want to follow in order to make money. Different strategies are used for different objectives and can have different time horizons. For example, suppose you have a certain objective in mind and you do not want to leave too much money on the table. In that case, you may want to use a trend-following strategy, which is used to predict changes in the price of the underlying securities. Also, you may decide to use a momentum-based strategy, which tries to buy the security that has risen the most over a specified period of time. Finally, if you have a set of rules in place, it will be easy to figure out which strategy you should use.
One major factor that determines a system’s effectiveness is the execution of the system, which relies heavily on strategy identification, also known as “strategy backtesting.” A quantitative trading system is successful only when the decision on which strategy is to be used is executed, and this backtesting stage is essential. This stage may be as simple as looking up the history of the particular security on the company’s website, or it may involve performing in-depth analysis, simulations, and even trying out multiple strategies to be used with the chosen strategy. Ideally, the strategy identification stage must be as close to real-life trading conditions as possible, to be able to determine the optimal strategy and its execution.
The strategy identification part is the most important part of the execution system. When the market goes up, most quantitative trading systems will always be in the black. This means they will either beat the market or stay right in it. When it goes down, the probability of the system making a profit will decrease. It is important to know the speed of the market, the historical volatility of the market, the risk appetite of the team that’s going to be running the trading system, the anticipated return of the system based on historical data, etc.
In the early days of the modern stock market, managers of hedge funds did not understand how to calculate the risk of their funds. This meant that they had to hold extremely large sums of cash or bonds on hand as a buffer. As soon as the analysts recognized that these funds could fall into complete collapse, managers started to take more conservative positions in their trading.
Steps to Set Up Quantitative Trading
Before setting up quantitative trading, make sure that you have correctly bound the exchanges (Binance and/or Huobi) API and transferred the trading funds to the spot trading account. Follow these steps above on how to set up quantitative trading with Royal Q:
The Royal Q account needs to have a pre-charged fuel fee greater than 2 USDT. If it is less than 10 USDT, you will be notified.
- Open the Royal Q app.
- Click Quantitative. To enter the quantization page.
- Choose the currency you want to open.
- Click on the transaction Trade settings to enter the currency transaction/trade settings page.
- Set strategy parameters. Or you can click Get a suggested strategy to get the platform’s default recommended strategy.
- After setting the strategy parameters, click Confirm.
- After the transaction setting is completed, click Start in the lower right corner. Then click Confirm.
- In the upper right corner of Log and Transaction record, you can view all the records of the robot performing operations for you.
- Click Pause to stop the current currency strategy operation.
- Click Sell to manually sell the currency.
Understanding the concept behind Quantitative Trading is a huge step forward in becoming a successful trader. The core concepts are:
- Price Movement: This is the part of the market in which the value of a stock or commodity changes most frequently. Traders look at the price change to infer the business momentum of a particular stock.
- Volume: This is the number of shares and dollars traded in the stock/digital assets. While investors may buy and sell several thousand assets of a particular stock in a day, a small fraction of that number is traded.
- Negative Tide: This represents the amount of sell orders in a stock/asset. An investor may wish to trade a stock if there is a significant difference between the value of the stock and the value of a put or a call on the same stock.
From the aforementioned, it is clear that in order to keep up with the process of quantitative analysis, a trader needs a robot such as Royal Q to help in the automation of quantitative trading. Follow the steps above on how to set up quantitative trading with Royal Q.