Prev Article: Designing Quantitative Trading Systems

How Much do You Like the Trade?

Strategies and Forecasts

To quantify how much you like a trade, you need some rules that determine some measure by which you like the trade at every point in time. We call these rules Strategies and we call said measure Forecasts.

For example, consider a simple technical indicator-based trend-following strategy.

• Buy rule: Buy when 30-day EMA crosses 250-day EMA.
• Sell rule: Sell when 250-day EMA crosses 30-day EMA.
  In this case, the forecast is a simple binary forecast of (1, -1).

The trading rule reflects your belief on the trade at any given point in time, and the forecast is the measure that quantifies it. With a forecast of 1, we quantify our belief for buying, and with a forecast of -1, we quantify our belief for selling.

Topics

• 1.1 - Quantitative Strategy Types - We cover the two main types of strategies in quantitative trading.
• 1.2 - Searching for Strategies - We cover how to search and select strategies.
• 1.3 - Backtesting - Is an extension of 1.2, where we explore methods of backtesting.
• 1.4 - Fitting and Quantifying Forecasts - We cover how to fit our strategy, and quantify forecasts acquired from our strategy

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Next Article: 1.1 - Quantitative Strategy Types