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The general rule of thumb is that if a trading strategy is successful, you won't find it in a book. Books are useful for understanding the general concepts, but
by niggler 13y ago
The general rule of thumb is that if a trading strategy is successful, you won't find it in a book. Books are useful for understanding the general concepts, but I use books in the negative sense (if I find the idea in a book, I immediately throw it out)
- rdtsc 13y agoMy rule of thumb is unless the person sharing the strategy: * owns their own private jet/yacht/other signs of opulence * didn't share it with anyone else try to ignore it
- rwmj 13y agoAnd don't discount that they own their own private jet just because they got lucky, or were in the right place at the right time.
- kokey 13y agoIt reminds me of this I read earlier today from http://www.theactuary.com/features/2013/04/the-mild-mannered-prophet-of-doom/ http://www.theactuary.com/features/2013/04/the-mild-mannered... "The other experience that led to his change of mind was carrying out some research on London casinos. He found that the typical gambler was a successful, entrepreneurial businessman. Far from being there for the thrill of winning, or losing, money, “these people actually believed that they could win”. He realised he was observing the upper tail of a distribution of people who were aggressive risk takers, yet naïve about the risks they were taking – the businessmen one sees in the casinos are the ones successful enough to have enough money to lose. These same people provide the underlying dynamics of capitalism. They are not rational, they do not understand risk and are therefore prepared to take risks that a rational agent would not take. And it is these people who drive the growth of the economy.
- niggler 13y ago"* owns their own private jet/yacht/other signs of opulence" What if they got their private jet by tricking others into following the strategy?
- shogunmike 13y ago(Disclaimer: I am the author of the article.) Consider the case of finding a set of strategies governed by a particular set of parameters in a book. For instance, the Moving Average lookback period. You will see authors posting certain strategies, albeit without revealing the market/time series with which they're carrying them out on or which exact parameters they use. This is the critical information, but it is also relatively straightforward to trial/test, assuming you have the available data. Also - the same strategy, implemented identically, can be both successful AND a failure for two different traders with identical starting capital. Why? Because one may not have the stomach for a 50% drawdown in the equity curve, despite the fact that had they waited, a "big swing" would have been around the corner. It is as much about preferences/tolerances as it is about the actual rule set.
- gknoy 13y agoI found your commentary on starting capital and the necessary willingness to let the algorithm run without interference especially informative. Thank you for the article!
- shogunmike 13y agoIt is much harder in practice than in theory to be disciplined enough to do this! I always remember this great quote (paraphrased): "A quantitative hedge fund only needs two members in order to be successful. A quant trader and a dog. The quant trader is there to feed the dog. The dog is there to make sure the quant trader doesn't touch anything."
- hasker 13y agoObviously speed and implementation details matter significantly. Your firm may have a better backend or superior code that allows the strategy to work better. Much of finance is working with attorneys to shift the system in one's favor. Gaining access to markets that previously did not allow foreign algorithmic trading, earning fee rebates on trades not available to others, etc matter increasing more in a business approaching saturation.
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- msellout 13y agoThat's not necessarily true. A market anomaly does not disappear instantaneously, but instead decays gradually as it is exploited and in turn becomes harder to exploit. Think of it as a radioactive half-life. Some research (I found the link on Mark Buchanan's blog http://physicsoffinance.blogspot.com/ http://physicsoffinance.blogspot.com/) suggests that half-life is quite long.
- endofeuro 13y agoIt depends on the timeframe. Trend-following anomalies may take years to go away but HFT anomalies disappear every day.