The Risk of Trading: Mastering the Most Important Element in Financial Speculation

CHAPTER 3

Predictive Analytics Using Quantitative Analysis

I have reviewed countless trading plans in conjunction with audits of trade activity. Every trader is unique and requires an individual approach on how to improve his or her game. Of course, there are common characteristics of traders in the early and intermediate stages of their development that would allow us to discuss a generic approach to development. The use of quantitative analysis in trading is one of those areas and the focus of this chapter.

There is a wide range of approaches traders can take for using historical trade data and assessing their performance. In many instances, a qualitative approach is justified. Teaching an approach of anything solely reliant on data would be a detrimental and limiting proposition. Traders generally require more than just past performance data to make decisions. Do we make the decision to start a family or choose a partner based on historical data? Not even a seasoned risk manager would do that. Before we dive into quantitative approaches to help improve trading results, let's review a bit more about what quantitative analysis is and the importance of using it in our data-driven approach.