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Ask HN: How to get into quantitative trading?

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Re: Ask HN: How to get into quantitative trading?

#51

Post by TheAlchemist »

bluepizza wrote: post #49
bmitc wrote: post #38

Earlier quoted context omitted.

Medallion was open to external investors. They closed it because Medallion has an approximate $10 billion cap before it moves the market too much and starts losing money and thus they just keep it to themselves. So they no longer need capital from outside investors. And why make others money when you can make yourself money? Their other funds can't just do what Medallion does, otherwise you are just increasing the ca…

It was closed to external investors in 1993, and had gains of 98% in 2008, in the middle of an economic meltdown. How come they figured it out for one single fund, but aren't able to make any alternative strong strategies except the secret and closed one?

Strategies have limits on how much money they can manage. By limits, I mean - either it's impossible to put in more (could be because there are no more counterparties to trade with above a certain amount) or it would significantly decrease performance.

Re: Ask HN: How to get into quantitative trading?

#52

Post by dev_0 »

paulpauper wrote: post #27
prakhar897 wrote: post #9

Noobie Question: Does this actually work? I thought alpha was very little and always fleeting so only big hedge funds generate profit from it.

there is always new stuff if you are astute enough to find it. look at r/wallstreetbets...some guys making tons of $ consistently there, albeit there is lot of survivorship bias too. position sizing is key. you run tests on certain strategies, like buying 0-day calls on dips in the morning, flip for profit at close. Use Kelly formula to optimize position size. etc.

[dead]

Re: Ask HN: How to get into quantitative trading?

#53

Post by MuffinFlavored »

jleahy wrote: post #48
MuffinFlavored wrote: post #47

Earlier quoted context omitted.

Nice, thanks. I wonder by how much. Here is why I ask: a lot of technical analysis is done on psychological levels related to (in my opinion) SPY strike prices/SPX strike prices/SPX levels. Yet, /ES is typically 20 points ahead of SPX. For example, there can be a battle zone of support/resistance at 4900 on SPX, but /ES blew past it a day ago. I wasn't sure if one had more power/prominence than the other.

The spread between SPX and ES is purely mechanical. It’s a function of expected future interest rates and dividends over the remaining life of the future. There is no such thing as support/resistance in reality.

> There is no such thing as support/resistance in reality.

Where would you say 80% of the daily trade volume comes from on average?

The powers to be that I can think of:

institutional investors / fund managers slowly reallocating (selling stuff off, buying stuff) daily

high frequency trading algorithms trading shares back and forth to each other in an artificial way to generate synthetic volume/movement

market makers reacting to option chain volume to remain neutral

"hedge funds" / "quant funds" running their algorithm

what do those algorithms look for at the "minute by minute" scale if not things like support/resistance/patterns/volume?

Re: Ask HN: How to get into quantitative trading?

#54

Post by financltravsty »

HN is the wrong crowd to ask, because they’re behind the curve on a lot of things.

Hop on FinTwit or CryptoTwit.

Derivatives (options/futures) are your best bang:buck. But crypto is where the real speculation is.

Read up on a practical trading book (hypothesis building, backtesting without bias, and risk management via Kelly etc.) and then start testing strategies.

Backtesting you can build yourself with any broker that has an API, but not all are made equal. It’s dead simple.

Look into [redacted]

Re: Ask HN: How to get into quantitative trading?

#55

Post by bmitc »

bluepizza wrote: post #49
bmitc wrote: post #38

Earlier quoted context omitted.

Medallion was open to external investors. They closed it because Medallion has an approximate $10 billion cap before it moves the market too much and starts losing money and thus they just keep it to themselves. So they no longer need capital from outside investors. And why make others money when you can make yourself money? Their other funds can't just do what Medallion does, otherwise you are just increasing the ca…

It was closed to external investors in 1993, and had gains of 98% in 2008, in the middle of an economic meltdown. How come they figured it out for one single fund, but aren't able to make any alternative strong strategies except the secret and closed one?

> had gains of 98% in 2008, in the middle of an economic meltdown

Medallion does not act on its own or any human sentiment. It is a black box trading strategy that looks for signals. It's not aurprise that during downturns, the overall market is incredibly inefficient. Medallion makes money off of the market's inefficiencies. I don't know what that has to donwith internal vs external investors though.

> How come they figured it out for one single fund, but aren't able to make any alternative strong strategies except the secret and closed one?

I dislike responding to a question with a question, but why would that work? Medallion has made several people billionaires and has done so incredibly quickly. Trying to replicate it with the same strategy will just step on its toes.

It helps to understand Medallion. It is a massive statistical trading system that places a huge amount of bets across all markets, like all of them, and hopes to win say 51% of the bets. When it reaches a certain size, they cap it by taking off all money above the cap and returning it to investors. You can't add more money to Medallion and keep its performance up. It moves the market too much and degrades its positions.

Re: Ask HN: How to get into quantitative trading?

#56

Post by radiusvector »

greenyoda wrote: post #13
radiusvector wrote: post #10

Earlier quoted context omitted.

I'm a trader who runs a couple of profitable strategies. You can generate alpha by implementing quantitative (or discretionary) strategies as long as you adhere to the basic principles of profitable trading with a strong emphasis on risk management. There are a million possible trading strategies, which of these will suit your personality/risk tolerance/system design is a matter of personal choice.

Could you please say more about what the "basic principles of profitable trading" are, or point us to a reference?

Sure. A trade can be decomposed into entry and exit criteria.

Only trade when you have an edge, i.e your model suggests that there is a higher probability of an outcome in your favor rather than a pure coin toss - either in entry or in exit.

Even coin toss entries can make money if you have an edge in exits and vice versa.

All in all, you can be right less than 50% of the time per trade, and still have alpha if your winning trade is 2 times your losing trade. Standard expected value stuff. Heck, I know traders who bat 30 or 35% and make colossal amounts of dollars.

Re: Ask HN: How to get into quantitative trading?

#57

Post by nurettin »

MuffinFlavored wrote: post #39
chronic74930 wrote: post #21

Earlier quoted context omitted.

> You should know this. Anyone who worked in quantitative trading knows you can consistently outperform the S&P500/VTI/SPY over 20+ year horizons. Buy and hold passive US equity index funds gives a Sharpe ratio of ~0.7 with annual return of 8-10%. Meanwhile, high frequency trading does upward of Sharpe 10+ with 40-60% annual return, with 10+ year track records, of course. Hell, even Citadel hedge fund, after their ri…

Slightly related: what are "big players" more likely to do to get exposure to the S&P directionally: 1. SPY shares long/short on margin/leverage 1. SPY options 1. SPX options 1. /ES e-mini futures 1. a blend of all Does one trump another in popularity?

it's usually front month ES, depending on volume. And MES for smaller accounts.

Re: Ask HN: How to get into quantitative trading?

#58

Post by hurrrr »

financltravsty wrote: post #54

HN is the wrong crowd to ask, because they’re behind the curve on a lot of things. Hop on FinTwit or CryptoTwit. Derivatives (options/futures) are your best bang:buck. But crypto is where the real speculation is. Read up on a practical trading book (hypothesis building, backtesting without bias, and risk management via Kelly etc.) and then start testing strategies. Backtesting you can build yourself with any broker t…

What are some great Twitter account to follow?

Re: Ask HN: How to get into quantitative trading?

#59

Post by dave333 »

andruby wrote: post #26
greenyoda wrote: post #13

Earlier quoted context omitted.

Could you please say more about what the "basic principles of profitable trading" are, or point us to a reference?

I hope there's more to it than "buy low, sell high"..

Buy upward momentum, and sell downward momentum.

Re: Ask HN: How to get into quantitative trading?

#60

Post by bluepizza »

bmitc wrote: post #55
bluepizza wrote: post #49

Earlier quoted context omitted.

It was closed to external investors in 1993, and had gains of 98% in 2008, in the middle of an economic meltdown. How come they figured it out for one single fund, but aren't able to make any alternative strong strategies except the secret and closed one?

> had gains of 98% in 2008, in the middle of an economic meltdown Medallion does not act on its own or any human sentiment. It is a black box trading strategy that looks for signals. It's not aurprise that during downturns, the overall market is incredibly inefficient. Medallion makes money off of the market's inefficiencies. I don't know what that has to donwith internal vs external investors though. > How come they…

Nothing can help understand Medallion, because there is no actual information about it. Everything you just said is conjecture.
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