61–70 of 169 posts
Earlier quoted context omitted.
It's 1ft/ns in a vacuum, but my understanding is that it's closer to 0.5ft/ns in a wire, so what you say is doubly true. But I think HFTs are running on servers close to the NASDAQ datacenter, and that people pay buckets of money for such privileges.
Wire? It's infiniband and other bufferless network protocols over fiber.
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I'm not sure that's completely true. 1) Are there places / markets that ST Arb and HFT won't go because it's too illiquid or too idiosyncratically volatile? 2) Are there edges so small that you won't chase? 3) Are there one-off opportunities (2010 flash crash, UST flash crash recently, etc.)? 4) Is there a set of strategies that manual traders know (which they should probably transfer to HFT strategies) that the HFT/…
#4 is the only one which I would say does not hold. I'd be very surprised if a firm of manual traders could consistently outperform the market (or beat a Sharpe of 1).
We have 2 spectrums for all known strategies (the amount of gold in the veins is another question):
* Strats that are automatable vs non-automatable.
* Strats that are unique (known to a few) vs well-known strats
Automatable:
Well-Known - This is where HFT becomes an engineering problem. It's also the easiest business decision to make. I hire some engineers + buy some computers and I can mint some money for a time. This is also a race to the bottom -- where there will be some easy money to be made at equilibrium, but it'll be unsustainable for HFT firms at the margin. I would say manual trading has 0 impact here -- and they'll likely get crushed.
Unique - These are strategies that only a small set of firms know. Eventually these strategies become well-known as people move around companies. There must be some secret strategies, though. Otherwise, why would Rentech & Citadel sue their own employees (unless we are to believe Simons & Griffin are simply vindictive). I think manual trading could work here if there is a strategy that simply haven't been discovered by the HFT & quant. It's might be hard, but not impossible. These secrets aren't anything you'll find online or in some trading forum, though. Or perhaps they are, but no self-respecting quant would go there (lest they become laughing stocks in their fund).
Non-Automatable:
Well-Known - PE is an example of one. In terms of liquid assets, maybe penny stocks are another area. If a group of "manual" traders couldn't get permission to delve there... it's probably even harder for a quant fund. It's also the territory of insider info and rumors.
Unique - Maybe being there for the liquidity crashes I stated earlier is a good example. But there are certainly non-automatable unique strats around.
Depending on how much gold you believe is in the veins, all strategies are heading towards automatable & well-known. However, in the interim, I can see manual traders still making money (even with a sharpe > 1). In fact, I would say there are well-known strats you can execute manually (in say, your PA, that return sharpe ~0.8ish).
Do you think technical analysis works? Look at the mountains, try drawing resistance lines, my god, you are able to predict when the mountain ridges are going to break through right past 9000! Are you Jesus?
Are there patterns in markets? Are there patterns in crowd behavior? I think so. Others may disagree.
Another point... if enough people believe and act on technical analysis signals, the prophecy becomes self fulfilling to an extent.
This is not to say a consistent simple mathematical formula involving Bolinger Bands or the like can be developed with any certainty. I think prediction based on patterns is art as much as science and involves a lot of probabilities rather than exacts.
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I recall seeing a graph of a stock index in which all but the 10 (e.g.) best days within a very long time span (~years) were removed - to mock up a trader who removed his money at a few unlucky times. You ended up losing huge. The lesson was exactly what you're saying -- you also have to count that one huge loss. You can't fence it off as an exception and remove it from the accounting.
Wealthfront posted a graph on that. I called them out on it on Twitter which they didn't appreciate.
Do you think technical analysis works? Look at the mountains, try drawing resistance lines, my god, you are able to predict when the mountain ridges are going to break through right past 9000! Are you Jesus?
If you don't think about technical analysis as charts and lines, but rather patterns or cycles of market (and human) behavior (which is of course what the charts and lines represent) you might see how technical analysis could have some validity. Are there patterns in markets? Are there patterns in crowd behavior? I think so. Others may disagree. Another point... if enough people believe and act on technical analysis…
Do you think technical analysis works? Look at the mountains, try drawing resistance lines, my god, you are able to predict when the mountain ridges are going to break through right past 9000! Are you Jesus?
Don't forget the magical term 'support'. Or 'Fibonacci levels'. Or 'resistance zones'. If I see another blog post by the brokerage firm I'm with about freaking 'supports' I'm going to hurl. Technical analysis puts everything from astrology through religion on to homeopathy to shame in its bullshittery. The most entertaining part is when they go on about the support levels between the currencies. "NOK-NZD is about to…
Earlier quoted context omitted.
Don't forget the magical term 'support'. Or 'Fibonacci levels'. Or 'resistance zones'. If I see another blog post by the brokerage firm I'm with about freaking 'supports' I'm going to hurl. Technical analysis puts everything from astrology through religion on to homeopathy to shame in its bullshittery. The most entertaining part is when they go on about the support levels between the currencies. "NOK-NZD is about to…
When I saw the post I was worried that HN would eat this crap up. But this is the appropriate level of revulsion. Whew.
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It sounds so amateur hour. Amateur hour? The traders could be monkeys, since it's only the salesman who matter. When you bet other people's money, the strategy is fairly simple: Go long (or short). Somebody at another company goes short (or long). One wins, one loses (it's guaranteed) and the winner gets a percentage of the "win". This is why they love volatility so much, as it determines the size of the profits, eve…
Prop stands for "proprietary," it means that they trade their own money.
I lost a shit ton of money at the firm where I work right now almost a year ago. I wrote software that began issuing trades outside of where it was expected to and did not stop. In a panic, I forced the server it was running on to terminate its process but trades were still open in the market. They had to be manually closed. I feel sick to my stomach even writing this right now, that hour I was trying to fix the prob…