The Quant Revolution

Traders Trade Secrets

The Quant Revolution

Now that we are firmly in the 21st Century, we can look back at the last century and say that one of it’s chief characteristics was that advances in scientific knowledge fundamentally changed just about every aspect of our lives.  Medicine, transportation, communication, commerce, friendship — the list goes on — all are now completely refashioned.

And yet, along with the amazing progress in our understanding of how things work, a lesser-known revolution completely killed any previous illusions as to “why” things work as they do.

The was the birth of Quantum Physics.  And, aside from providing the keys to building nuclear weapons and computer chips, Quantum Physics has a lot to say about the Stock Market.

One of the great principles of Quantum Physics is that our entire universe is nothing more than a collection of “probabilities”.  This idea gets very little media attention — it is largely relegated to SciFi movies — because most people want to believe in certainty.  But Quantum Physics has shown — among other things — that one particle can exist in two places at the same time.

Albert Einstein was so upset by the emergence of Quantum Physics that he spent the entier second half of his life trying (unsuccessfully) to find a replacement theory.  His famous quote: “God does not play dice with the Universe”.

Ironically, Quantum Physics has been used in recent years to actually prove the mathematical validity  several aspects of Einstein’s theories.

So how does all this relate to the Stock Market?

What Quantum Physics did is to shift the attention away from the “why” move the focus to the “how’ and the “what”, “where”, “when” & “who” of life.  Experts in all fields realized that simply by measuring “everything” we could better understand what might happen.  It became very clear that quantitative analysis of measurable data sheds more light on situations than endlessly looking for the “root causes” of things.

And it just so happened that the world also developed a new tool — the computer — that could analyze more measurable data than ever before.  Not just double or triple the data, but millions, billions, and trillions of more data points.  You’ve probably heard of it. Big Data, as it is often called.

Finally, spurred by both Quantum Physics & the Computer, great strides were made in in the realm of higher mathematics loosely know as “probability theory”.

Why is this a Traders’ Trade Secret?  Because on Wall St., it is old news that the firm with the best algorithms, the best data, and the best computers wins. They’ve known this since the late 1990’s.

As we discussed in the previous article, most of the industry panders to the childish desire — an insistence really — to know “why”. And the financial media and companies that sell solutions & strategies feed this childish desire with endless articles about why this or that stock jumped in price.

As far as we are concerned at SteadyTrader, this is all just a lot of hot air being used to “sell the dream”.  The dream that you (or we!) as individual traders can “figure it out” with “simple rules” in “just a few minutes”.

Wow! If that is true than the real pro’s are wasting countless billions of dollars on math geeks writing algorithms, on expensive data centers, and even more expensive data feeds. When did Wall St. firms decide to that they like to waste all this money?. Obviously, it’s not a waste of money.  It’s the “secret” to their incredible success over the last 20 years.

Now, of course, even with all these advances, there is margin of error and there is risk.  But the tools are getting more accurate — quickly.  Just as we see it in all areas of life.

Take the weather, for example.  The weather is like the Stock Market.  Millions of variables that interact.  But forecasts are getting more accurate. And some forecasts, where the full force of technology is applied, are becoming quite precise.  The paths of hurricanes are now routinely known in advance.  Landfalls are predicted to within a band of 10 miles or so.

And predictive modeling of Stock Market behavior is changing everything about trading. It’s not sexy. It doesn’t make you feel like “an expert” the way looking a fundamentals and chart pattern do.  But looking at chart patterns and fundamentals still appeals to most traders because these are very simple tasks that flatter the pride and ego of individual traders. It’s humbling to press a button and take the results of a quaint-based recommendation when you have no idea what’s behind it.

But you use your smartphone without having a clue as to how it works.  And you take medications developed by — you guessed it — Big Data mining of the human genetic code.  At SteadyTrader, we try to do our best to help traders “grow up”, stop pretending to be “stock analysts”, and just “follow the numbers”…

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

the Editors

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It’s what professional traders all know, and what the so-called “financial media” NEVER talk about.

Every business manager — from the corner car wash to the corner office of a multinational corporation — has a spreadsheet budget model. And it’s been like this since 1990. If are trading any type of “system” without such a model — that is just reckless…

Why? Because a spreadsheet budget model allows you to plug in the kinds of results you are REALLY getting from your system — and it will show you how that will affect your own trading P&L.

If you don’t have such a model, you are simply believing the “cherry picked” examples on the advertising for your system. Hello?!? You actually believe the advertising? Or the salesman? We call that just plain stupid, and if you disagree, please leave this site immediately. can’t help you. What you are looking for is a leprechaun with a pot of gold.

Now, not everyone is a spreadsheet jockey, so we built one for you. We call it the SST (Strategy Stress Tester). All you need to do is plug in YOUR NUMBERS. Like how many trades you take each month. What is your winning percent, etc. There are actually 8 CRUCIAL VARIABLES. like these.

And no, you can’t do this on the back of a napkin or on a calculator.


Take a look at the SteadyTrader system. We call it Green Light — because it gives you a “green light” on fast moving stocks and ETFs. It won’t take long. Our signals pop the next day on moves that last 1-5 days. It’s about making quick profits — and taking them BEFORE the market takes them back (which is inevitable).