Differences Between Professional & Amateur Quants


quantThere was an interesting post by David Varadi on the CSSA Blog earlier this month that did a great job of defining the term “quant.”

If you’ve spent any time at all reading about systematic trading, you have probably come across the term. Varadi does a great job of providing both thorough and simplistic definitions for the term. He also compares quants to both fundamental and technical analysts.

His basic message is that a quant is someone who crunches numbers in an attempt to assemble a trading strategy that is able to be clearly defined in code and then tested on historic data. He points out that quants share similarities with technical analysts as well as fundamental analysts.

Like I said, if you’ve been reading about systematic trading for any amount of time, this isn’t really earth-shattering stuff. Where I found Varadi’s post to be really interesting was when he began discussing the difference between professional quants and amateur quants.

He addressed five specific areas where professional behavior differs from amateur behavior:

System Improvements

According to Varadi, when looking to improve the performance of a systematic strategy, a professional quant will attempt to improve a system by focusing on long-term robustness rather than short-term performance. An amateur quant will take the opposite approach, focusing on tweaking indicators to improve backtesting results over short-term time frames.

The System Idea

When it comes to the idea that a system is designed around, professional quants will start with a very simple model and only increase complexity when necessary. The amateur quant will attempt to make the original idea as complex as possible and then build an elaborate system that covers the entire idea.

Model Development

When developing and refining models, Varadi points out that amateurs are often too focused on the backtest performance results. Professional quants maintain their focus on the logic and theory that supports the idea, rather than getting lost in the minutia.

System Completion

The professional quant will take a long time to develop and improve a model, and will constantly work to improve it. He will never have a finished product as there will always be some improvement still to make. The amateur will seek to complete his model as quickly as possible, only to find himself afraid to trade it. Amateurs also run into the problem of constantly seeking one new idea after another.

Outside Influences

Varadi believes that the biggest difference between professional quants and amateur quants is that the professionals are not influenced by outside forces. Amateurs, on the other hand, will regularly allow their thinking to be influenced by whatever random person happens to chime in on their system.

Varadi covers a wide range of behaviors that separate a seasoned professional quant from the amateurs. But I think his ideas have an even broader application to traders in general. Are you making any of these amateur mistake? I sure have.