Quantitative trading consists of trading strategies based on quantitative analysis, which rely on mathematical computations and number crunching to identify trading opportunities. Price and volume are two of the more common data inputs used in quantitative analysis as the main inputs to mathematical models.
Quantitative traders take a trading technique and create a model of it using mathematics, and then they develop a computer program that applies the model to historical market data. The model is then backtested and optimized. If favorable results are achieved, the system is then implemented in real-time markets with real capital.
The advantage of quantitative trading is that it allows for optimal use of backtested data and eliminates emotional decision-making during trading. The disadvantage of quantitative trading is that it has limited use. A quantitative trading strategy loses its effectiveness once market conditions change.