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Systematic Trading

Investing successfully entails a lot of factors, from personal knowledge to macro-scale economic events. Using a trading strategy based on pre-set rules and logic, following a systematic approach, offers you a greater chance of success, leading to greater returns. CARL focuses on sophisticated hedge fund strategies using the systematic method of quantitative research and algorithmic tools to give you full access to the power of quants.

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Systematic Trading – A Definition

Systematic trading is an investment method to generate income on financial markets by applying pre-set rules to your trading strategy.

With the rise of computers, traders and investors have started simulating markets on computer systems and have automated investment processes in many areas. The goal is to reduce the risk of human error in overvaluing or undervaluing assets and to develop a system that ensures that even the smallest trade opportunities can be exploited. Despite automation being the goal, human oversight is still important to the method's success as volatility, and other risk factors have to be considered when setting it up.

How Does Systematic Trading Work?

A trader or investor looking to apply this approach to their investment strategy has to first define what the goal for their systematic approach is. To explain this process more efficiently, let's look at setting up a systematic trading strategy aimed at replicating a certain index, including stocks and futures, from high-liquidity markets. Trading systematically in this instance may look like this:

  1. Use fundamental analysis to determine worthwhile futures and stocks.
  2. Identify a strategy to approximate your chosen index by analyzing stocks, futures, and the index, as well as correlations between them.
  3. Specify the strategy with real-time market data.
  4. Backtest the approach, including costs and risk controls.
  5. Apply your strategy, continuously control risk, and use an algorithm to identify optimal trading opportunities.

Naturally, this example is highly simplified. In the real world, systematic, algorithmic, and quantitative approaches are much more differentiated and feature a wide range of factors and rules-based components much too complex to explain in detail here.

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What’s the Benefit of Using Systematic Trading Strategies?

First and foremost, a systematic approach to trading cuts eliminates the element of human emotion.

Where a sudden rise in volatility in the equity market may evoke fear of losing a large part of an investment in traders, the systematic strategy focuses only on data, both historical and new. Instead of making a hasty decision mainly based on fear, systematized strategies make trading decisions based on technical analysis. And in trading, rationality always trumps emotionality. Other benefits are:

  • Backtesting is possible
  • Risk management for large portfolios is easier
  • Faster reaction speed to sudden market changes

One of the biggest draws of the systematic approach is its quick reaction time. Algorithms can recognize even extremely short time intervals when trading is most profitable and can act quickly. They see the open window and are quick enough on their feet to jump through it, meaning they can make a profit when a human trader wouldn't be able to see the opening in time before it closes again.

Also, faster execution of single trades is an immensely useful by-effect of systematic trade approaches.

Backtesting means exactly what the name suggests: After setting up a systematic trading strategy, the trader feeds the program historical data to check how well the algorithm does. The results show how the strategy would have held its own in this historical market simulation. It is effectively a "fantasy football"-style beta test for the algorithm, before a trader ventures into live trading with their new strategy. It prevents a systematic trader from potentially losing significant amounts of money and assets by using an untested algorithm in an actual market situation. However, backtesting results do not guarantee a strategy that will rake in profits in a live market situation.

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Which Assets Can Be Traded Systematically?

Equity, ETFs, cash bonds, options, futures, swaps – the list goes on and on. Basically, there are no asset classes which don't offer an opportunity to apply an approach based on system and trading rules. You can choose to apply high-frequency trading (HFT) principles or hold on to the assets forever. There are hardly any boundaries that could restrict you when constructing your portfolio and choosing an appropriate short-term or long-term strategy.

CARL has identified hedge funds as a perfect investment instrument to apply quantitative trading methods to. With our sophisticated strategies, you have complete control over all of your investments, you benefit from monthly liquidity, and you can expect 15%+ targeted returns.

Quant Hedge Funds and Systematic Trading – Are They the Same Thing?

To a certain extent, quantitative and systematic trading sound extremely similar: They rely on a fixed set of trading rules and logic to follow, which determine their trading behavior. However, systematic trading systems stick to their plan while traders make the investments automatically or manually. This manual approach to investment is one main difference when compared to investing using quant trading approaches. Over time, quant trading has developed into computational trading using algorithm-based models.

The other big difference is the foundation that the trader uses for their unique strategy. The quantitative approach is based on vast collections of data and analysis from various sources, such as form data mining or fundamental and statistical data. The human element is cut out of the process entirely. An investor is responsible for picking a particular strategy. Everything that follows, like analyzing and putting in trading orders, is done by the chosen quantitative strategies.

How Algorithmic Trading Enters the Picture

Quantitative trading strategies are a subset of algorithmic trading. Your systematic approach is put into a computer program to create an algorithm. The algorithm then checks your pre-defined market environment, such as a specific section of the stock market, from the perspective of your pre-defined trading rules. The system then provides the investor or trader with output that notifies them of opportunities to invest, buying or selling specific assets. Depending on the coding skills of the programmer, the buying-selling aspect of the algorithm may be automated, as well.

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3 Easy Steps to Start Investing With CARL

Investing in quants is as easy as pie if you've got CARL on your side. Investors can set up an CARL account quickly and easily.

Set Up Your Account

Quickly and securely create your account, verify your investor status and become a member of our community.

Analyze Investments

Using the tools within the CARL app, determine which strategies at what allocations are right for your investment goals.

Fund Your Investment

Simply save your portfolio settings and on the next strategy funding cycle your investment will be live!

Systematic Trading – More Sophisticated With Carl

systematic strategy is a good starting point for achieving financial growth and stability. However, CARL has combined systematic trading with quantitative research and automated methods to maximize your returns. Our approach yields a wide range of quantitative hedge fund strategies for you to choose from. Set up your account with CARL today and find an optimal game plan for investing that fits your level of acceptable risk as well as your financial goals.

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