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Principles of Quantitative Equity Investing: A Complete Guide to Creating, Evaluating, and Implementing Trading Strategies by Sugata Ray

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5. Market Timing—Getting In and Out at the Right Time

In addition to filtering securities to invest in at any given time, quantitative strategies can also provide guidance on timing decisions. In particular, if I were to believe that markets revert, I may set a strategy up to invest in stocks after a year of bad performance, and invest in cash after a year of good performance.

A number of quantitative trading strategies actually focus on this aspect of quantitative analysis. Technical analysis, for example, is nothing but a timing screen based on historical stock prices for a single stock. However, technical analysis is generally done by eyeballing charts, and proponents will often say there’s an “art” to the process, rather than simply a set ...

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