If we now know what a disciplined and a discretionary trader looks like why add quantitatively? If discipline is our safety net and discretionary is our process, then quantitativeness is our foundation. It is the confidence on which we base our trades.
In word order, I try to be a disciplined, quantitative, discretionary trader. Quantitatively in this instance, refers to trades based on a defined strategy that is successful a certain amount of the time from many simulations. In other words, I’m looking for at least a 70 per cent success rate of a strategy over a sample size of hundreds, if not thousands of tests. (A test run will usually not include the possibility of slippage or spread so live trades can come up short of test results).
The quantitative bit is best done by ourselves. We gain confidence in a strategy by doing this. However, this is not an easy thing to do. We either have to dedicate an excessive amount of time manually conducting the test and therefore have available to us the necessary historical charting capability to do so. Or, we have access to programmes (or design our own) that can automatically run a test of specific parameters; this also can be an issue if we do not keep the test parameters simple and very clearly defined.
And this in itself demands consideration. For example, if we like a strategy (we’re keen for it to work) we might find ourselves running a test adding more and more what if’s until we get the result we want. A better way to prove our strategy until we’ve mastered our quantitative analysis is to use someone else’s. They are available if we take the time to look. For myself, I’d recommend Adam Grimes and some of the selected work by Larry Connors and Cesar Alvarez.