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STEP 2: Strategize


"Despite common perceptions to the contrary, it is actually quite straightforward to locate profitable trading strategies in the public domain."
- Michael Halls-Moore

In fact, here is an outdated research report that lists 101 formulaic alphas.

StepsTeam can find and select a proven trading strategy for you. You will receive a peer reviewed research report supporting the strategy. Also, if you already have a trading idea, we can research, code, and test it for you.


StepsTeam will help you make sure that a strategy is worth developing from the onset of the project. That will make it much easier to raise investment capital in the future and make a profit. Make sure your strategy is supported by research.


Source Strategies

A StepsTeam quantitative analyst will search academic finance journals, preprint servers, trading blogs, trading forums, weekly trading magazines and specialist texts and select a trading strategy. However, if you already have a trading strategy, we can research, code, and test it for you. We prefer to research and develop strategies that meet the following standards:

Stocks and ETFs

StepsTeam specializes in trading stocks and electronically traded funds (ETFs). ETFs can help reduce idiosyncratic risk by facilitating investments in a portfolio of diverse assets. They also simplify investing in futures, Forex, commodities, gold, and specific sectors, and stocks. Our strategies often include individual stocks as well.

Fully Automated

We develop systems with a focus on full automation. The software is able to handle the day to day logistics of trading. StepsTeam uses a comprehensive plan for disaster recovery and fully automated data backups. Also, we employ robust strategies that can be reconfigured as markets change.

Low Frequency

StepsTeam develops strategies that use multiple time frames. The duration between trades varies from minutes (day trading), to days (swing trading), to months (position trading). We avoid the additional expenses related to high frequency trading (HFT). Our strategies allow for occasional high latency.

Basket Trading

StepsTeam researches and develops strategies that invest in multiple positions simultaneously. Basket trading is a commonly-used investment strategy among program traders, hedge funds and large institutional investors who have significant amounts of money to invest. Small investors may also use this type of trading as a method for mitigating risk because it can help diversify the stocks in an investment portfolio to a variety of different sectors. Each position in the basket is also traded independently.

Long Only

StepsTeam develops strategies that generally avoid using leverage. Leveraged investing is a technique that seeks higher investment profits by using borrowed money or securities. Leveraged investing generally exposes an investor to higher risk and is not necessary to make a profit.

To make the most profit using leverage, a trader must predict the future by answering the following questions correctly:

  1. Will the price of the stock or ETF rise or fall?
  2. How much will the price move?
  3. When will the price reach the desired target?
  4. Will using leverage increase profit?

If the investor makes the wrong guesses, they can quickly lose all of the money on the trade . . . or even more. Worse, the math and code for trading leveraged assets is more complex and therefore more prone to mistakes. Finally, it is easy to trigger a margin call and the broker may sell the position at the worst time. The potential loss of uncovered call writing can lead to financial ruin.

Leveraged ETFs dramatically limit the complexity and risk of using leverage. Therefore, StepsTeam researches and develops some strategies that use leveraged ETFs. However, all other leveraged assets are avoided altogether.

Robust Trading

Robustness can relate to both economic and statistical concepts. For statistics, a test is claimed as robust if it still provides insight to a problem despite having its assumptions altered or violated. In economics, robustness is attributed to financial markets that continue to perform despite alterations in market conditions. In the context of automated trading, being "robust" means a system can handle variability and remain profitable.

StepsTeam employs a layered approach to trading and investing.

  1. Random Walk
    The first layer includes choosing a strategy that works with pseudorandomly walking prices. This layer simulates a completely unpredictable market where no patterns exist. It deemphasizes symbol selection which allows the basket of symbols trading to vary.

  2. Fundamental Analysis
    The second layer includes carefully screening and selecting stocks. Here StepsTeam relies on the techniques found in fundamental analysis; quality, value, and growth investing.

  3. Technical Analysis
    The third layer includes the techniques found in trading based on indicators. Price action, bargain, and momentum investing.

StepsTeam combines the layers in a sophisticated fashion to arrive at a unified “mega-alpha”. It is the “mega-alpha” that is actually traded.

Explain the Strategy in Plain English

Like rocket science, quantitative finance is intimidating subject matter. In fact, astrophysicists, quantum physicists, and others with advanced degrees often apply similar mathematical models to automated trading and investing. StepsTeam employs a team of subject matter experts with diverse backgrounds. The team will use advanced mathematical modeling to train your trading robot.

You don't have to go back to school and get a PhD in statistics. First, our quantitative analyst will describe the trading strategy in plain English. That way, you will understand exactly why your robot decides to trade. Secondly, the robot will remember all the trading rules and automatically execute them according to plan for you. The transactions that the robot make are easily understood using simple math (i.e. addition, subtraction, multiplication, division and rounding). You will understand what your robot is doing.


When this Step is completed, you will receive a report. It will include the research papers supporting the strategy as well as additional commentary by the StepsTeam quantitative analyst. You will also receive the trading strategy written in plain English.