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The equity curve is an important tool for traders as it shows how effective their strategies are over a time period. Through this curve, traders can view the cumulative profit or loss of a trading account. It is one of the most important tools used by traders to measure the effectiveness of their strategies and make decisions based off of data. Traders can analyze the equity curve to see the profitability and risk associated with their trading. Understanding Equity Curve Equity curve is useful as it shows the total account balance or equity over a period of time. The graph…
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Backtesting is an important part of developing any trading strategy as it attempts to predict how a strategy would have worked in the past. Although backtesting is crucial, the value gained from it will give flawed assessments of a strategy’s real world trading capabilities if not interpreted correctly. Here are some important measures which can help traders in evaluating the viability of their strategies. Net Profit and ROI Explanation: Net profit is the profit or loss that a trader makes from a trading strategy during a specified period after deducting all related pescribed expenses. ROI on the other hand is…
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The asset prices change quite dramatically, based on crucial events. Special Event Driven Trading strategies are aimed at this. Examples of these events include corporate changes like mergers or earnings reports, geopolitical events, and changes to regulations. Traders react to these specific moves in the marketplace. Types of Event Driven Strategies Earnings Announcements Explanation: One of the most reliable indicators of activity for event driven trading is the announcement of earnings. There is previously unexplained but evident volatility surrounding the release of a company’s earnings report, traders are speculating activity around this. The results such as revenue growth profits and…
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In order for any one to become a successful quantitative trader, building an understanding over the nuances of financial markets, models and programming is imperative. Many new entrants into this field of trading make similar mistakes and it is important to address and rectify them. Failing to do so can have dire consequences to quantitative trading in the longrun. Overfitting Models Pitfall: Overfitting occurs when a model used for trading is tailored too well with previous market data and ends up picking up only the noise instead of patterns. This model is expected to do great as far as backtesting…
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Algo trading has completely transformed the world of finance. It has automated the trading process which reduces human errors and enables high-frequency strategies. As we learned about and employed more algorithms in our trades, we learned about ethical considerations during the process as well. What we learned from it was that we want for fair and transparent market practices. This could only be possible if both the traders and the regulatory parties came to an agreement on these ethical standards values. Market Manipulation Types of Manipulation Unfair Advantage: Manipulations give an unfair advantage to certain participants which disrupts the very…
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In order to become a top-tier quantitative trader, one must possess not only vast acknowledging of financial concepts but also have a solid grounding in mathematics and a fair amount of programming skills. Here’s a step-by-step method that will assist aspiring quant traders in acquiring the right expertise. Foundational Knowledge 1.1 Financial Markets and Instruments Learn The Basics: Comprehend how the financial market works as well as the equity, fixed income, derivatives, and forex markets. Key Concepts: Understand basic concepts such as market orders, spread, market makers, and liquidity. Suggested Resources: “Everything You Should Know About The Stock Market” By…
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Algo trading that is personalized involves formulating algorithms based on trading tactics that suit each investor’s goals and risk appetite. Personalized trading strategies are different from algorithms of larger organizations because they provide an actual business strategy that places into consideration the investors financial goals and circumstances. What Is Algorithmic Trading That Is Customized 1.1 Overview Personalized algorithmic trading is the creation and deployment of trading algorithm(s) for trading that are tailored to the needs of an individual investor. 1.2 Distinct Features Customer specificity: Strategies correspond with the investor’s level and type of risk, investment duration and financial targets. Automation: These…
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Market psychology is essentially the investors’ sentiment and actions on the market which carries significant weight on the financial markets. This behavior is very complex and hard to analyse but quantitative models are able to decode sentiments like fear and greed, so as to enable analysts and traders to predict and make informed decisions about market trends. Sentiment Analysis Monitoring the online sentiment towards a business’s goods or services is often done through sentiment analysis which employs Natural Language Processing and Machine Learning to capture market sentiment from text sources like social media, financial reports, news articles among other sources.…
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ML has completely altered the trading landscape, along with the inner workings of the financial industry and the machinations of traders and institutions. Being able to allow systems to learn and change from data generated without hard coding it has offered novel ways of thinking about forecasting, risk management, and how to develop a strategy. Given below are some of the most important real life cases of machine learning being used within trading. Predictive Modeling for Price Forecasting Predictive modeling for price forecasting is by far the most popular use of machine learning within trading. ML algorithms have been designed…
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AML, or Anti-Money Laundering, describes the processes and guidelines that are deployed in an attempt to prevent the disguising of illegally acquired funds into supposedly legitimate earnings. In algorithmic trading – algo trading – where trades are executed by automated computers, adherence to AML regulation is of utmost importance. Algo traders need to put in place strong systems and controls to help them mitigate money laundering. Learning AML Regulations from the Perspective of Algo Traders As trading firm that specializes in algo trading, there are some AML regulations and policies from governing bodies we need to follow: 1.1 Financial Action…