Build. Test. Trade: The Machine and the Rise of Quantitative Trading

Could systematic trading help improve the way you trade and invest in the market?

In a world of stock tips and tweets and 24-hour “Bull versus Bear”
debates, a new generation of traders and investors has turned their attention back to the data itself when it comes to making trading and investing decisions.

These traders and investors – collectively known as “quants” or quantitative-based traders and investors – rely on systematic, scientific approaches to buy markets that are oversold, sell markets that are overbought, and invest in the kind of stocks that have historically produced significant gains over time.

Said Rishi Narang, author of Inside
the Black Box: The Simple Truth About Quantitative Trading
, in a conversation with Larry Connors back in 2008:

“The features of quant trading that I think are really great are the rigor and intentionality that goes into formulating the strategy and researching it.

“You can’t tell a computer, ‘Hey, I like the idea of cheap stocks outperforming expensive ones.’ The computer doesn’t understand that.

“You have to really define everything you mean in that statement.
What’s the cheap stock? What does outperform mean? What’s an expensive stock? Over what period do you want me to ask this question? With what universe of stocks do you want me to examine it?

“You have to be really precise in how you formulate your ideas, which I think is extremely valuable, actually, because it creates a lot of rigor in thinking.”

This is the new world of quantitative trading. And with tools and resources like The Machine® now available to an ever-widening community of traders and investors, the world of quantitative trading is more accessible than ever.

Quantitative trading is about three things: building models, testing models and trading models. Rather than relying on tips or rumors, quantitative traders and investors develop a theory about how markets work – however simple or complex – and then put that theory to the test. If the model holds up under testing, then the quantitative trader begins to trade that model, consistently and systematically, using the performance of the model during the testing as a guide to real-world experience.

Said Larry Connors, speaking about quantitative trading to a group of traders earlier this year:

“Systematic, model-driven trading is about ‘see the trade, take the trade.’ It can be difficult to do. But ultimately you have to let the model play itself out. Those who tend to do that do the best over time.”

In fact, quantitative trading is one major reason why truly legendary traders and investors like Jim Simons, founder and CEO of Renaissance Technologies, and David E. Shaw of D&E Shaw & Company are among the most successful hedge fund managers in the world. And for a growing number of traders and investors managing their own money or running their own funds, the quantitative, data-driven approach to trading and investing is playing a large role in their success, as well.

If you’ve been thinking about what adding a systematic, quantitative approach to trading and investing in stocks and ETFs might do for your ability to manage and grow your money, then you owe it to yourself to see and hear the latest webinar on The Machine by Larry Connors. The Machine is the only financial software that lets traders and investors build, test and trade quantified portfolios of both backtested mean reversion (pullback) trading strategies and backtested trend-following trading strategies. To find out more about The Machine and to save your spot at the next presentation, click

David Penn is Editor in Chief at