In finance, a trading strategy (see also trading system) is a predefined set of rules for making trading decisions. Traders, investment firms and fund managers use a trading strategy to help make wiser investment decisions and help eliminate the emotional aspect of trading. A trading strategy is governed by a set of rules that do not deviate. Emotional bias is eliminated because the systems operate within the parameters known by the trader.

The parameters can be trusted based on historical analysis (backtesting) and real world market studies (forward testing), so that the trader can have confidence in the strategy and its operating characteristics. When developing a trading strategy, many things must be considered: return, risk, volatility, timeframe, style, correlation with the markets, methods, etc. After developing a strategy, it can be backtested using computer programs.

Although backtesting is no guarantee of future performance, it gives the trader confidence that the strategy has worked in the past. If the strategy is not over-optimized, data-mined, or based on random coincidences, it might have a good chance of working in the future. Forward testing a strategy give the trader a much better picture of how it will work in the future. Forward testing, or out-of-sample results, are the best way to measure its quality.

A trading strategy can be executed by a trader (manually) or automated (by computer). Manual trading requires a great deal of skill and discipline. It is tempting for the trader to deviate from the strategy, which usually reduces its performance. An automated trading strategy wraps trading formulas into automated order and execution systems. Advanced computer modeling techniques, combined with electronic access to world market data and information, enable traders using a trading strategy to have a unique market vantage point.

A trading strategy can automate all or part of your investment portfolio.Computer trading models can be adjusted for either conservative or aggressive trading styles. Backtesting is a process, usually performed with aid of computers, by which traders try to estimate how financial instruments would have performed in the past had a particular mechanical trading system been employed to trade them.

A quantitative analyst is a person who works in finance using numerical or quantitative techniques. Similar work is done in most other modern industries, but the work is not called quantitative analysis. In the investment industry, people who perform quantitative analysis are frequently called quants Volatility most frequently refers to the standard deviation of the continuously compounded returns of a financial instrument with a specific time horizon. It is often used to quantify the risk of the instrument over that time period.

Volatility is typically expressed in annualized terms, and it may either be an absolute number (dollar 5) or a fraction of the mean (5%). Volatility can be traded directly in today’s markets through options and variance swaps. If a page was recently created here, it may not yet be visible because of a delay in updating the database; wait a few minutes and try the purge function. Swing trading sits in the middle of the continuum between day trading and trend following.

Swing traders hold a particular stock for a period of time, generally between a few days and two or three weeks, and trade the stock on the basis of its intra week or intra month oscillations between optimism and pessimism. It should be noted that in either of the two market extremes, the bear-market environment or bull market, swing trading proves to be a rather different challenge than in a market that is between these two extremes.

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