How to Tell Real Quant

Traders Trade Secrets

How to Tell Real Quant from Fake Quant

This one is easy.

Real “quantitative analysis” and predictive modeling is a ‘black box”.

As we point out in the previous article, the “Quant Revolution” was only made possible by the advent of powerful computers and database technology that allowed genuine mathematicians the ability to analyze (literally) “trillions & trillions” of bits of data.

So one requirement of “a real quant” is this type and scale of technology resources.

The other requirement is expert level training in mathematics, including calculus & probability theory.  Other experts in economics are also often at the table. Such as “biomathematics”.

As you can see, “Real Quant” is real expensive to develop and maintain.

Hedge Funds and Wall St. firms have these kinds of resources. We’ve all read about their massive “data centers” in New Jersey!  All this “stuff” couldn’t fit on Wall St.!

This means that Individual Traders need to buy their “quant” as a black box or a report. The “quant solution provider” can charge you, the customer, a reasonable fee because spreads his costs over all of his subscribers.

Keep this in mind as you investigate the many so-called “quant” trading solutions.  The vast majority are simply “quantified pattern-recognition” systems that rely on simple arithmetic (or technical indicators) and small data sets.  These systems have their place, but they are the “state-of-the art from 15-years-ago”, and they don’t necessarily work in today’s market environment.

Buying quant as a “black box” does scare many individual traders — who like to feel in control. But don’t fool yourself into thinking that you can look under the covers and tweak genuine “quant”.  Unless you have a PhD. in mathematics and millions of historical trades sitting on high speed servers sitting in your spare bedroom.

There are ways in which you can evaluate “black box” quant, as well as the older “quantified pattern recognition” tools.

We’ll start to look at this more in the next article….

the Editors