6 ms·

The charts show he was trading between Jun 2009 and Oct 2010. How much of his gains could be attributed to the market recovery in general? The Dow went from abo

by rhplus 14y ago

The charts show he was trading between Jun 2009 and Oct 2010. How much of his gains could be attributed to the market recovery in general? The Dow went from about 7000 to 11000, the Russell from about 600 to 800.

washedup 14y ago
Well, in the article he said tat he did not care about direction, he would simple buy when his expected price was up, and sell when down. However, there could have easily been a bias in his model that "preferred" and performed better during upward movements. If so, he got lucky.
- jspaulding 14y ago
  Longs and shorts were 50/50 and my program showed no preference for up or down days. High volatility and high volume was what it liked.
  - debacle 14y ago
    I guess the real question is: what was your alpha in that timeframe?
    - jspaulding 14y ago
      I'm probably showing my ignorance here but what do you mean by alpha? And how is it quantified?
      - solutionyogi 14y ago
        Alpha is how much excess return you had over the market (or risk free return( E.g. if you made 10% when overall market was up 15% for the year, you have negative alpha. [As someone could have bought index and held it through year to generate better return] If you made 20% when market was up 10%, you have positive alpha. That is why everyone in the investment community is 'seeking alpha'.
- mikeash 14y ago
  You don't need a bias to accidentally make money when the market is overall moving up, do you? Picking stocks by throwing darts while blindfolded will, on average, make you money in a market that's moving up.
  - lotu 14y ago
    The problem is he was also selling short. If you pick stocks randomly and randomly pick to buy or sell you shouldn't make money, ever.
    - mikeash 14y ago
      You're right, if you're randomly and without bias including short selling then you'd expect to neither make nor lose money, aside from transaction fees.
mertd 14y ago
That's about 50% gain. Unless he put in $1m that doesn't completely explain his ROI.
- rorrr 14y ago
  Considering he was making 1000-4000 trades per day, I assume he put more than $1M. Trade fees alone would eat a huge chunk of money. The cheapest trade I can find is $3.95 (optionshouse.com). So the fees will be $3950 - $15,800 per day. $15,800 - $79,000 per week.
  - beagle3 14y ago
    He was trading futures. You need $10K in margin per future. He states somewhere that he started with $30K or so, and I estimate his "margin at risk" at any point was $100K or less. And he surely wasn't paying retail prices - you can go down to around $0.50/future if you know what you are doing. (In general, futures have 1:5 to 1:20 leverage)
    - rorrr 14y ago
      Ok, at $0.5/future, the fees are $500 - 2,000 per day $2,500 - 10,000 per week $130,000 - $520,000 per year That's just the fees. He must make that much just to break even. If you can make that much starting with $30K, you're a supermotherfucking genius.
      - beagle3 14y ago
        You should look more deeply into how these things work. Let's take the DAX Futures for example (which he was trading). All numbers are in EUR. One "tick" (minimal movement) is worth 12.5 EUR. At volume you pay 0.5 EUR, IIRC, but let's assume you pay 1 EUR in fees, everything included. If you bought and sold at the same price, you lost 1 EUR/trade. This is the cost of business. If you bought, and sold after a favorable 1 tick movement, (e.g. bought at 4013.0 and sold at 4013.5), you're 10.5 EUR richer - 12.5 on the difference, minus 1 for each trade (one buy, one sell). If you bought and sold after an unfavorable one tick movement (e.g. bought at 4013.5 and sold at 4013.0), you're 14.5 EUR poorer - 12.5 on the difference, and 1 for each trade (one buy one sell). OP averaged $2/trade over 200,000 trades; that means he had 2/3 right calls, and 1/3 wrong calls or so if he only traded dax and only had 1 tick moves. He was very smart, but you're looking at it wrong - the fees are the cost of doing business, much like salaries are the cost of producing software. In finance, you rarely care about revenue or "notional" (which can easily run into the trillions per year for a small trader - for ~1 eur, you get 75,000 eur in notional value on the dax). You just roll the fees up-front into your choices when thinking about it, and it all makes much more sense. (Not trying to take away from OPs very commendable achievement - just trying to give the common perspective on how to view this)
pbharrin 14y ago
Great point, here is a chart of the Russel 2000, incredible growth during that period. http://finance.yahoo.com/q/bc?s=%5ERUT&t=5y&l=on&z=l&q=l&c= http://finance.yahoo.com/q/bc?s=%5ERUT&t=5y&l=on&#38...

by rhplus 14y ago

washedup 14y ago

Well, in the article he said tat he did not care about direction, he would simple buy when his expected price was up, and sell when down. However, there could have easily been a bias in his model that "preferred" and performed better during upward movements. If so, he got lucky.

jspaulding 14y ago
Longs and shorts were 50/50 and my program showed no preference for up or down days. High volatility and high volume was what it liked.
- debacle 14y ago
  I guess the real question is: what was your alpha in that timeframe?
  - jspaulding 14y ago
    I'm probably showing my ignorance here but what do you mean by alpha? And how is it quantified?
    - solutionyogi 14y ago
      Alpha is how much excess return you had over the market (or risk free return( E.g. if you made 10% when overall market was up 15% for the year, you have negative alpha. [As someone could have bought index and held it through year to generate better return] If you made 20% when market was up 10%, you have positive alpha. That is why everyone in the investment community is 'seeking alpha'.
mikeash 14y ago
You don't need a bias to accidentally make money when the market is overall moving up, do you? Picking stocks by throwing darts while blindfolded will, on average, make you money in a market that's moving up.
- lotu 14y ago
  The problem is he was also selling short. If you pick stocks randomly and randomly pick to buy or sell you shouldn't make money, ever.
  - mikeash 14y ago
    You're right, if you're randomly and without bias including short selling then you'd expect to neither make nor lose money, aside from transaction fees.

mertd 14y ago

That's about 50% gain. Unless he put in $1m that doesn't completely explain his ROI.

rorrr 14y ago
Considering he was making 1000-4000 trades per day, I assume he put more than $1M. Trade fees alone would eat a huge chunk of money. The cheapest trade I can find is $3.95 (optionshouse.com). So the fees will be $3950 - $15,800 per day. $15,800 - $79,000 per week.
- beagle3 14y ago
  He was trading futures. You need $10K in margin per future. He states somewhere that he started with $30K or so, and I estimate his "margin at risk" at any point was $100K or less. And he surely wasn't paying retail prices - you can go down to around $0.50/future if you know what you are doing. (In general, futures have 1:5 to 1:20 leverage)
  - rorrr 14y ago
    Ok, at $0.5/future, the fees are $500 - 2,000 per day $2,500 - 10,000 per week $130,000 - $520,000 per year That's just the fees. He must make that much just to break even. If you can make that much starting with $30K, you're a supermotherfucking genius.
    - beagle3 14y ago
      You should look more deeply into how these things work. Let's take the DAX Futures for example (which he was trading). All numbers are in EUR. One "tick" (minimal movement) is worth 12.5 EUR. At volume you pay 0.5 EUR, IIRC, but let's assume you pay 1 EUR in fees, everything included. If you bought and sold at the same price, you lost 1 EUR/trade. This is the cost of business. If you bought, and sold after a favorable 1 tick movement, (e.g. bought at 4013.0 and sold at 4013.5), you're 10.5 EUR richer - 12.5 on the difference, minus 1 for each trade (one buy, one sell). If you bought and sold after an unfavorable one tick movement (e.g. bought at 4013.5 and sold at 4013.0), you're 14.5 EUR poorer - 12.5 on the difference, and 1 for each trade (one buy one sell). OP averaged $2/trade over 200,000 trades; that means he had 2/3 right calls, and 1/3 wrong calls or so if he only traded dax and only had 1 tick moves. He was very smart, but you're looking at it wrong - the fees are the cost of doing business, much like salaries are the cost of producing software. In finance, you rarely care about revenue or "notional" (which can easily run into the trillions per year for a small trader - for ~1 eur, you get 75,000 eur in notional value on the dax). You just roll the fees up-front into your choices when thinking about it, and it all makes much more sense. (Not trying to take away from OPs very commendable achievement - just trying to give the common perspective on how to view this)

pbharrin 14y ago

Great point, here is a chart of the Russel 2000, incredible growth during that period. http://finance.yahoo.com/q/bc?s=%5ERUT&t=5y&l=on&z=l&q=l&c= http://finance.yahoo.com/q/bc?s=%5ERUT&t=5y&l=on&#38...