Quantitative Trading: The Skills You Need

Quantitative trading is often hailed as one of the most profitable trading strategies. It involves the use of mathematical computations to identify lucrative opportunities in a sea of other options. Although quantitative trading has traditionally been seen as a tool for large financial institutions and hedge fund firms, it is becoming common among individual traders. Because of how lucrative it can be, a lot of people want to learn quantitative trading. The hurdle most people meet is that there is so much they need to learn and so many different resources that it can get confusing to know where to start. Below, we are going to look at the different skills you need to become a quantitative trader.

Math and Statistics

A high-level understanding of math and statistics cannot be overlooked. Statistics is the foundation statistical trading is built upon and math is then used to get the right data from the statistics. There are lots of online courses on statistical math that you can start using from a few dollars a month or per year. If you do not have the funds to pay for these courses, you can always check on platforms such as YouTube and you will find lots of useful resources.

“An Introduction to Statistical Learning: With Applications in R” written by G. James, D. Witten, T. Hastie, and R. Tibshirani is an excellent statistics book to get you going. It teaches a lot of the skills you will need including linear regression, resampling methods among others. There are lots of books that provide foundational knowledge of statistics, and that break down this dense topic into an easy-to-digest format depending on your skill level.

Programming

To build and understand different models, you need an understanding of a statistical programming language. The most common programming languages used include R, which is an open-source language, Python because of the many data analysis libraries it gives you access to, and MatLab. If you know any of these programming languages, then your journey is off to a good start. 

If not, you should start with Python since it is widely used and beginner-friendly. You could start on platforms like code mentor or data camp that have extensive resources for learning Python. LearnPython.org is another great resource for people who are just starting with Python. 

Leveling Up

Once you have adequate math and statistics skills and have a grasp of a statistical programming language, it is time to begin the real work. Here, you can decide to build the toolboxes or trading algorithms that you will use. For beginners, the numerous open-source toolboxes and algorithms that exist will help you get started by showing you how both of these tools work. 

These toolboxes and algorithms will show you how to work with financial data. You will also need to learn some basic trading strategies. Good topics to start on include mean reversion, model selection, regression modeling, and momentum trading. You can then pick up from there. 

As with other skills you need, you can find lots of free and paid resources online that will set you on the right path.

Machine Learning

Machine learning is becoming vital in having a successful trading career. For individual traders, machine learning might not be required, but if you want to make a career out of quantitative trading, you need to learn machine learning.

If you are focusing on the Python programming language, there are lots of packages, such as SciKit to help you get started with machine learning. These include full bootcamps to crash courses for those who are already comfortable with advanced Python. Many universities, such as the University of California, also offer their machine learning lectures for free online, with some even offering nano degrees.

Testing, Analysis and Metrics

At this stage, you might have some models working for you, but to build a successful strategy, you need to test, analyze, and optimize your strategies rigorously. This is especially important if any models, toolboxes, or algorithms you develop will be used by the public.

You Need to Keep Learning

Although all the above will help you become a competent quantitative trader, you need to keep learning as it never stops. This is because trading strategies, programming languages, and the market itself all change and you will need to adapt. 

Quantitative trading is very lucrative for those who decide to get into it. There are so many different paths to follow if you become a competent quantitative trader. These include developing profitable models and tools for sale, becoming a trader yourself, or starting a fund after you demonstrate a track record of long-time profits.