Not a scam. Quantitative trading is a very professional field that requires in-depth accumulation and research in finance, mathematics, physics and even psychology. The reason for this argument is that many people deceive people under the banner of quantitative trading. Because they are so professional, many people don't know why. Now let me talk about what quantitative trading is

What is quantitative trading

Quantitative trading means that computers automatically trade stocks or futures products based on models. For quantitative trading, the most important thing is the establishment of a model, which generally involves using modern statistical and mathematical methods and computer technology to find patterns that can bring excess returns from massive historical data to formulate strategies. Use mathematical models to verify and solidify these rules and strategies, and then strictly implement them through programmed transactions. The American legend James Simmons is a benchmark figure in quantitative trading. The Medallion Fund operated by him achieved an actual average annualized return of over 60% in the twenty years from 1989 to 2009. This kind of performance is more than 20 percentage points higher than the average annual return of the S&P 500 Index during the same period. Even compared with the trading performance of financial giant Soros and stock god Buffett, it is still more than 10 percentage points ahead.

Four major characteristics of quantitative trading

1. Discipline

All decisions are made based on models.

Discipline is first reflected in relying on models and believing in models. Before making decisions every day, you must first run the model and make decisions based on the results of the model, rather than relying on feelings.

Discipline has many benefits. It can overcome the weaknesses of human nature, such as greed, fear, and luck, and it can also overcome cognitive biases;

Another benefit of discipline is that it can be tracked .

2. Systematicity

Specifically manifested as "three mores"

Firstly, it is manifested at multiple levels, including allocation of large categories of assets, industry selection, and selection. There are models at three levels of individual stocks;

Secondly, there are multiple perspectives. The core investment ideas of quantitative investment include macro cycle, market structure, valuation, growth, earnings quality, analyst profit forecasts, market sentiment, etc. Multiple angles;

The other is multi-data, which is the processing of massive data. The human brain's ability to process information is limited. When there are only 100 stocks in a capital market, this is an advantage for qualitative investment fund managers, who can deeply analyze these 100 companies. But in a large capital market, such as when there are thousands or tens of thousands of stocks, the powerful information processing capabilities of quantitative investment can reflect its advantages, capture more investment opportunities, and expand greater investment opportunities.

3. Arbitrage Thoughts

Quantitative investment is looking for valuation depressions and capturing opportunities brought about by mispricing and misvaluation through comprehensive and systematic scanning. Qualitative investment managers spend most of their time wondering which company is a great company and which stock can double; unlike qualitative investment managers, quantitative fund managers spend most of their energy analyzing where the valuation depression is and which product< /p>

4. Probability to win

This is manifested in two aspects.

First, quantitative investment constantly digs out historical patterns from history that are expected to be repeated in the future and applies them. use.

The second is to rely on a group of stocks to win, rather than one or a few stocks to win.

The current status of quantitative trading in my country

Quantitative funds have continued to develop in recent years, and the management scale of the industry leader Huanfang has reached 100 billion from 500 million in 2015 to June 2021. .

On September 1, market turnover hit a new high in recent years, reaching 1.7 trillion. However, today’s market turnover is 0.99 trillion, one step away from one trillion. It was previously rumored that "quantitative trading contributed to half of the trillion-dollar trading volume of A-shares." However, according to calculations by practitioners, the upper limit of quantitative trading’s contribution to market liquidity is probably within 30%. But what cannot be ignored is that quantification will bring huge follow-up orders. Take the well-known Everbright "Oolong Index" incident as an example. On August 16, 2013, Everbright Securities' 7.2 billion buy order attracted more than 30 billion in funds in a short period of time. The entry caused the Shanghai Composite Index to suddenly rise by 5.96%, with 59 heavyweight stocks hitting their daily limit.

What should we investors do when quantitative trading is rampant?

Quantitative and machine software programmed trading already exist. We cannot turn a blind eye, let alone deceive ourselves. Theoretically, all short-term transactions, as long as they are model-based, can be replaced by quantification. It’s just a matter of time.

What we need to do:

First, study quantification and pay attention to quantification. Develop a model for making peace with quantitative strategies.

Second, make use of strengths and avoid weaknesses. Where the advantages are quantified, we should not compete with them for jobs. Where quantification is beyond our reach, we can give full play to people's advantages. For example, understanding, relative medium and long-term understanding, fundamental understanding, etc.

Third, if you can’t beat it, you can consider joining. You can quantify your mature trading model. Use barbarians to control barbarians.