Key points covered in this podcast
– What being a ‘quant’ really means in today’s trading scene
– How trading education has ramped up the quantitative focus
– The techniques to apply to your own quantitative analysis
Mathew Verdouw is a charted market technician, founder and CEO of trading software company Optuma, and 22-year veteran of technical analysis. Originally a computer systems engineer, he wrote his own technical analysis platform that is now used worldwide by a range of customers, from private traders to major US firms.
In this edition of our podcast Trading Global Markets Decoded, our host Tyler Yell talks to Mathew about the quantitative trading strategies to consider for your own trading experience. Benefit from the quantitative trading strategies with Mathew Verdouw and listen to the podcast by clicking on the link.
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Mathew’s trading journey began a year out of University, having started his own software engineering consulting company. In between contracts he met a man who needed a trading idea. ‘I told him I’d never worked in the markets and grew up in a family where markets were considered evil, but the strategies and ideas we spoke about really resonated with me.
‘My initial motivation was to sell as much software as I could so I could open a trading account and end up on a remote island somewhere.’
Teaching the CMT
Aside from running Optuma, Mathew teaches the latest curriculum of all three levels of the Chartered Market Technician Program (CMT), which champions the use of technical analysis. He praises the credentialing body CMTA in its move to make the program more quantitative in nature.
‘When I did my CMT six years ago, there was a huge focus on some discretionary, difficult concepts on all three levels and the CMTA has looked at this and decided to change it.
‘That means there’s a whole new generation of technicians coming through the program and learning to be more quantitative – and it’s wonderful for technical analysis in the future.’
Mathew says he does not want to teach something that’s solely theoretical and can’t be implemented. ‘Even for us in starting Optuma and building the tools, all this quantitative work on null hypothesis and significance testing had a really academic feel to it and helped us go back and say, OK, we want to build a whole way of looking at a sample distribution and comparing how our test fits on that.’
What does being a ‘quant’ mean to Mathew?
‘The term ‘quant’ is a little bit of a misnomer,’ he says. ‘It’s a perception of people building mathematical models, and it sounds hard, but I think that as a quantitative technical analyst I just want to measure.
‘If I’m measuring my idea in a way that gets rid of all biases, and I’m being as robust and thorough as I can, I’d say that’s being quantitative.’
Quantitative analysis is also so much more than backtesting, he adds. ‘The backtesting is the end result. First we need to do what we call signal testing, finding every single example of a signal and looking at the profile of it. What’s my average return, how long does that outperform the market? And based on that information I can then bring it into a back tester.
‘For example, if I took a signal and I was getting 5,000 signals in an eight-year period, that’s 55 signals a month. Then I can ask, ‘Is that even achievable, would the transaction costs kill me, can I manage that many trades?’
‘If I’m doing intraday trading maybe I can, but if I’m only watching the market once a week and sitting down on a Saturday morning, rebalancing my portfolio and making decisions for what I’m going to do Monday, maybe not. So it’s building that understanding as well.’
Be Sure to Check out Mathew’s Platforms
Mathew Verdouw can be found on Twitter @optima, and make sure you check out his blog at optima.com/blog.