What are the Different Types of Quantitative Trading Strategies?

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  • Written By: Jim B.
  • Edited By: M. C. Hughes
  • Last Modified Date: 31 August 2019
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Quantitative trading strategies are used by investors who believe in the reliability of statistical information as the determining factor in the potential of specific stocks. Some strategies are based on the actual qualities of the companies that issue the stock and pertain to information gleaned from financial reports. Other quantitative trading strategies are based on trends in price movements of the stocks themselves as a means of predicting future price movements. At times, investors like to protect against heavy losses by instituting a stop-loss for any trades they make which allows them to get out of any stock position that might be going sour.

Investors have a wealth of information at their fingertips about all of the stocks available to them. Some investors like to use pieces of that information and combine it with their own past experience when making buy and sell decisions. Other investors like to let the numbers make the decisions for them, thus taking any psychological hindrances out of the picture. For that latter group of investors, there are numerous quantitative trading strategies that focus solely on the numbers.


Those investors who use quantitative trading strategies often decide whether to buy or sell a stock based on the dictates of the system they follow. Some of these systems are based on the companies that issue the stocks. Income reports and balance sheets are the source of the pertinent information for such strategies. The raw numbers gleaned from this information can be broken down into financial ratios which measure practically every aspect of a company's operations.

By contrast, some investors choose to ignore the specifics of a company in favor of following price trends. These investors tend to be day traders and swing traders who are looking to get in and out of their positions in a matter of days in an effort to make quick profits. As a result, the quantitative trading strategies they use will likely focus on a stock's volatility, which is a measure of how fast the price moves and the range of its movement. Systems for picking stocks in this manner often send investors buy or sell signals whenever a stock price reaches a certain level.

One of the drawbacks inherent in quantitative trading strategies is that they can be slow to react to major market shifts. As a result, some strategies may lead to several bad trades before adjustments can be made. For this reason, investors may wish to put a stop-loss into any trade they make. Stop-losses are placed at a level where the investor is no longer comfortable staying in a specific position and running the risk of losing more money. Doing this allows some protection against a potentially faulty strategy.


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