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I find it hard to believe there’s any day trader using any kind of information making a consistent profit. Isn’t everybody just dabbling around hoping to be in

by qwtel 8y ago

I find it hard to believe there’s any day trader using any kind of information making a consistent profit. Isn’t everybody just dabbling around hoping to be in the 50% that outperform by chance? i’ve read about ed thorp pioneering statistical arbitrage in the 80s (?) which would fit the bill of “consistent returns”, but I doubt that there is any of that left close to 50 years later. I’m wondering what all these quantitive funds are doing.

deleted 8y ago
[deleted]
lend000 8y ago
Allegedly 90% lose money on trades, but 50% of the capital makes/loses money in a given market window (however most of the winning capital is owned by a smaller number of players than the losing capital, mostly banks, quant funds, and creative/smart/disciplined/lucky indie traders).
- noddy1w 8y ago
  Not if the exchange has spreads and leverage. Even small spreads can screw your odds completely if you trade at margin, and gamblers bust means if you turn over your money a few times at high leverage you'll probably lose it all.
- omgtehlion 8y ago
  It is not 50%, even if you are allowed to post passive orders (quotes) and pocket the spread (instead of loaing it) commissions will eat a lot. Effectively, brokers and exchanges have almost infinite ROI: with small and fixed investments in infrastructure and marketing they take _percentage_ of your traded volume. And shady trading rooms will screw you on commissions, spread, high margins on volatile instruments, and in very unlikely event if you manage to cash out more money than deposited, they will hold your account for "review of illicit trades". But even on real and legal exchanges far less than 50% of capital wins, I assure you.
darksaints 8y ago
FWIW, I'm day trading and I'm making consistent returns, well above the rates of most mutual funds and hedge funds. The caveat is what most fund managers would call capacity. My trading strategy can't scale without severe cuts in those returns. It's extremely easy to buy 10 contracts and hold for 5 ticks. I've never experienced slippage at all. Operating at mutual fund sizes, I would be trading at volumes that would slip 25 ticks before filling completely. My strategy can't and won't ever scale to that level...it would degrade to negative profitability likely with two or three million dollars of daily volume. Effectively this means I have major limits to compounding...like most day traders, I merely skim returns off of a fixed amount of capital. So yeah, I do well enough for myself, and there are thousands of traders just like me. The quant firms may be on another level, but it's not because they have better returns than you can get as a day trader, it's because they have better capacity.
- ISL 8y ago
  What stops big firms from automating a great many small trading strategies?
  - saosebastiao 8y ago
    Honestly I have very little insight into how the bigger firms work. I've only ever done this by myself. But I can imagine that it's a lot harder to come up with 1000 strategies that don't compete with each other for the same opportunities than it would be to hire a team of geniuses that can build a single high capacity strategy.
    - jamiek88 8y ago
      How long have you been doing this? Sounds like you are eyes wide open anyway.
  - Timmah 8y ago
    Because one strategy returning $50-100k a year is a pittance to an investment bank. And (I bet) those strategies require a lot of manual intervention. Plus the risk value if they go haywire.
speedplane 8y ago
The only way you can consistently make money is by knowing things others do not (e.g., insider trading) or by taking advantage of structural problems or inefficiencies in the trading platform (e.g., high frequency trading). I do believe that insider trading is rampant. I've seen many occasions where a large corporate announcement sends a stock up or down, but hours before, you can see the price of the stock slowly slide in the direction. Obviously a certain amount of that may be random/explainable, but I've seen it a lot and my intuition says more is going on. This also seems relatively easy to quantitatively measure, I'd love to see a real analysis of it.
- wolco 8y ago
  Most people follow the community when they should be trying to be ahead of the community.
- colechristensen 8y ago
  Information asymmetry doesn't have to be on insider information.
  - speedplane 8y ago
    > Information asymmetry doesn't have to be on insider information. In theory, yes, in practice no.
    - topmonk 8y ago
      I used to visit fuckedcompany.com to short sell companies based on information I found there. It worked for awhile until that site became too popular. That was a long time back, 1999 or so.
      - Retric 8y ago
        Which get's into the short vs long term problem. In the short term strategy X works, in the long term it failed. How much of that success is random chance and how much is the value of the underlying data? And how do you avoid losing all benefit when the strategy eventually fails? The reality is this kind of short term incite based investing does not really scale. Over time the money you spend on paying people to do this is less than your risk adjusted long term benefit.
Erlich_Bachman 8y ago
Who do you expect to take effort to change your mind? It is much better to keep most people with skills and grit away by giving off impression that the task is impossible: it means there is more alpha for the ones who actually work with it and make a living. Because whatever alpha there is available, it is negatively correlated with the number of minds and amount of dollars trying to extract it. The markets can only get so efficient. This industry is filled with secrecy on one side, and paradoxically, with a wealth of free information on the other side. It's just that information is so abundant and complex, a normal person has no chance of using it anyway. Especially if they think it's impossible. The hoards of "get-rich-quick" dudes with no emotional control rushing into this thinking they can learn to day-trade in a month, loosing their life savings and then ranting on forums about how it is all just a big casino - they do not help the situation either. Well I guess in a way they do help real managers to keep their jobs. So you keep wondering. Just stay away from the markets :)
tim333 8y ago
Not sure about individuals but https://en.wikipedia.org/wiki/Renaissance_Technologies https://en.wikipedia.org/wiki/Renaissance_Technologies did ok. (Assets now$84bn, "from 1994 through mid-2014 it averaged a 71.8% annual return").
Ntrails 8y ago
> I doubt that there is any of that left close to 50 years later. Based on what? The conditions for stat arb to be possible haven't really changed.
bunderbunder 8y ago
> the 50% that outperform Not even. After you take your brokerage's fee structure into account, you've got to nominally outperform the market by a fairly decent margin in order to stay ahead of the market. The amount by which you need to depends on the rate at which you incur those fees, so day traders are giving themselves the toughest row to hoe in this department.
- toast0 8y ago
  Brokerage fees are getting lower and lower. I understand Interactive Brokers will pass through exchange rebates for setting orders that add liquidity. Negative fees add up too.

by qwtel 8y ago

deleted 8y ago

[deleted]

lend000 8y ago

Allegedly 90% lose money on trades, but 50% of the capital makes/loses money in a given market window (however most of the winning capital is owned by a smaller number of players than the losing capital, mostly banks, quant funds, and creative/smart/disciplined/lucky indie traders).

noddy1w 8y ago
Not if the exchange has spreads and leverage. Even small spreads can screw your odds completely if you trade at margin, and gamblers bust means if you turn over your money a few times at high leverage you'll probably lose it all.
omgtehlion 8y ago
It is not 50%, even if you are allowed to post passive orders (quotes) and pocket the spread (instead of loaing it) commissions will eat a lot. Effectively, brokers and exchanges have almost infinite ROI: with small and fixed investments in infrastructure and marketing they take _percentage_ of your traded volume. And shady trading rooms will screw you on commissions, spread, high margins on volatile instruments, and in very unlikely event if you manage to cash out more money than deposited, they will hold your account for "review of illicit trades". But even on real and legal exchanges far less than 50% of capital wins, I assure you.

darksaints 8y ago

FWIW, I'm day trading and I'm making consistent returns, well above the rates of most mutual funds and hedge funds. The caveat is what most fund managers would call capacity. My trading strategy can't scale without severe cuts in those returns. It's extremely easy to buy 10 contracts and hold for 5 ticks. I've never experienced slippage at all. Operating at mutual fund sizes, I would be trading at volumes that would slip 25 ticks before filling completely. My strategy can't and won't ever scale to that level...it would degrade to negative profitability likely with two or three million dollars of daily volume. Effectively this means I have major limits to compounding...like most day traders, I merely skim returns off of a fixed amount of capital. So yeah, I do well enough for myself, and there are thousands of traders just like me. The quant firms may be on another level, but it's not because they have better returns than you can get as a day trader, it's because they have better capacity.

ISL 8y ago
What stops big firms from automating a great many small trading strategies?
- saosebastiao 8y ago
  Honestly I have very little insight into how the bigger firms work. I've only ever done this by myself. But I can imagine that it's a lot harder to come up with 1000 strategies that don't compete with each other for the same opportunities than it would be to hire a team of geniuses that can build a single high capacity strategy.
  - jamiek88 8y ago
    How long have you been doing this? Sounds like you are eyes wide open anyway.
- Timmah 8y ago
  Because one strategy returning $50-100k a year is a pittance to an investment bank. And (I bet) those strategies require a lot of manual intervention. Plus the risk value if they go haywire.

speedplane 8y ago

The only way you can consistently make money is by knowing things others do not (e.g., insider trading) or by taking advantage of structural problems or inefficiencies in the trading platform (e.g., high frequency trading). I do believe that insider trading is rampant. I've seen many occasions where a large corporate announcement sends a stock up or down, but hours before, you can see the price of the stock slowly slide in the direction. Obviously a certain amount of that may be random/explainable, but I've seen it a lot and my intuition says more is going on. This also seems relatively easy to quantitatively measure, I'd love to see a real analysis of it.

wolco 8y ago
Most people follow the community when they should be trying to be ahead of the community.
colechristensen 8y ago
Information asymmetry doesn't have to be on insider information.
- speedplane 8y ago
  > Information asymmetry doesn't have to be on insider information. In theory, yes, in practice no.
  - topmonk 8y ago
    I used to visit fuckedcompany.com to short sell companies based on information I found there. It worked for awhile until that site became too popular. That was a long time back, 1999 or so.
    - Retric 8y ago
      Which get's into the short vs long term problem. In the short term strategy X works, in the long term it failed. How much of that success is random chance and how much is the value of the underlying data? And how do you avoid losing all benefit when the strategy eventually fails? The reality is this kind of short term incite based investing does not really scale. Over time the money you spend on paying people to do this is less than your risk adjusted long term benefit.

Erlich_Bachman 8y ago

Who do you expect to take effort to change your mind? It is much better to keep most people with skills and grit away by giving off impression that the task is impossible: it means there is more alpha for the ones who actually work with it and make a living. Because whatever alpha there is available, it is negatively correlated with the number of minds and amount of dollars trying to extract it. The markets can only get so efficient. This industry is filled with secrecy on one side, and paradoxically, with a wealth of free information on the other side. It's just that information is so abundant and complex, a normal person has no chance of using it anyway. Especially if they think it's impossible. The hoards of "get-rich-quick" dudes with no emotional control rushing into this thinking they can learn to day-trade in a month, loosing their life savings and then ranting on forums about how it is all just a big casino - they do not help the situation either. Well I guess in a way they do help real managers to keep their jobs. So you keep wondering. Just stay away from the markets :)

tim333 8y ago

Not sure about individuals but https://en.wikipedia.org/wiki/Renaissance_Technologies https://en.wikipedia.org/wiki/Renaissance_Technologies did ok. (Assets now$84bn, "from 1994 through mid-2014 it averaged a 71.8% annual return").

Ntrails 8y ago

> I doubt that there is any of that left close to 50 years later. Based on what? The conditions for stat arb to be possible haven't really changed.

bunderbunder 8y ago

> the 50% that outperform Not even. After you take your brokerage's fee structure into account, you've got to nominally outperform the market by a fairly decent margin in order to stay ahead of the market. The amount by which you need to depends on the rate at which you incur those fees, so day traders are giving themselves the toughest row to hoe in this department.

toast0 8y ago
Brokerage fees are getting lower and lower. I understand Interactive Brokers will pass through exchange rebates for setting orders that add liquidity. Negative fees add up too.