Changing a mean reversion strategy to deliver 30% annual returns since 1999

> My system works, but: (1) It doesn't beat the market on green market days or overall. Given how the market has been since October 2023, you'd do a lot better by just holding an ETF. (2) It does make money on red market days too (3) Overall it does earn and is successful, but I express caution because I think that at least four consecutive years of success is necessary before labeling a strategy successful. I haven't run it for that long.

You discovered a trading strategy that beats sp500 index fund as long as you know ahead of time if the market will be red vs green?

> There are all levels of skills and of time horizons. Those with bad skills either quit or adapt.

With losses forcing out dumb money the other side of a typical trade will be parties that tend to win their trades. Are you "paying for order flow" to trade against dumb money?

> The reason why the market is viewable from the perspective of a perpetual motion machine is due to excessive federal moneyprinting shaking things up. If not for it, if dollars were backed 1:1 by hard assets like gold, I think it'd be a lot calmer.

I do not view the market as a perpetual motion machine. I view market beating strategies as a perpetual motion machine. Federal money printing changes the unit of account so there appears to be asset price inflation but unless you are holding the currency nothing really changes just size if the stick being used to measure things. Precious metals as a currency do not work which why they are no longer used for that purpose. If they did work better you would see successful counties continue to use them not abandon them.

I haven't read Taleb's book. But wouldn't the logic you employ apply to any strategy?

eg I could also say that you could fool yourself believing that investing in the S&P 500 index is a strategy with high-probability of performing well, with a hidden surprise of low-prob cat losses.

I never claimed that my strategy beats the sp500. It has underperformed, especially the way the market has been. The market has returned 25% over the last year. The expected performance of the strategy is somewhere between 10% and 30%, but it is not clear what exactly.

I don't think it's necessarily fair to call others "dumb money". They can hold for longer and still profit with the market.

The market is not a zero sum game because the market capitalization is several multiples of the total invested funds. The market is a money printer in its own way.

> Precious metals as a currency do not work which why they are no longer used for that purpose. If they did work better you would see successful counties continue to use them not abandon them.

You're 100% wrong here, also 100% brainwashed. Precious metals as a currency do not work because the government doesn't have the freedom to mint an unlimited supply of hard assets. The government holds a gun to people's heads, locking them up if they don't use the highly inflationary national currencies. Countries are run by politicians, bureaucrats, and armed police mafia who care about their paycheck and pensions which wouldn't be so big if not for free moneyprinting at the expense of the citizenry. The people do not have freedom of their choice of money.

> I never claimed that my strategy beats the sp500. It has underperformed, especially the way the market has been. The market has returned 25% over the last year.

After two years of research, you have developed a trading strategy that, compared to the S&P 500, "has underperformed, especially the way the market has been"? If your strategy depends on buying / selling it will trigger taxes each time this happens, yes? Short term gains taxes? When people switch from sp500 to your strategy how much less will then earn over a decade? Yet you claim your strategy "works"?

> The expected performance of the strategy is somewhere between 10% and 30%, but it is not clear what exactly.

If a profitable pattern exists, what makes you think nobody else has found it and that it will continue to exist in the future? Is it because few look for these profitable patterns? Are they poorly funded? Do they lack incentives to do it?

> I don't think it's necessarily fair to call others "dumb money". They can hold for longer and still profit with the market.

"Dumb money" refers to hobby traders who believe stock trading will make them rich. Some rely on gut feelings, while others use advice from astrology or technical analysis. Why do you suppose professional traders pay for order flow from such traders?

> The market is not a zero sum game because the market capitalization is several multiples of the total invested funds. The market is a money printer in its own way.

For every trade, there is a counterparty on the other side, and your gain is their loss and vice versa. This makes trading a zero-sum activity. Furthermore, for every trade, there are middlemen who charge fees, making trading a negative-sum activity.

Long-term buying and holding is positive-sum investing and does not require a trading strategy or searching for profitable patterns.

> Precious metals as a currency do not work because the government doesn't have the freedom to mint an unlimited supply of hard assets.

The purpose of a currency is to facilitate transactions and maintain stable prices in the short term while losing value in the long term to discourage hoarding. Gold cannot achieve this because the amount of gold cannot be adjusted to match the size of the economy as it grows or shrinks. When the economy grows, using gold as money will cause it to stall because people will save up gold as it becomes more valuable instead of spending it. Deflationary currencies like gold are detrimental to economic growth, which is why modern countries no longer use them.

> The government holds a gun to people's heads, locking them up if they don't use the highly inflationary national currencies.

Are you surprised by inflation? Saving your wealth using a currency does not make sense since it is designed to lose value over time.

If you prefer precious metals, what prevents you from keeping your wealth in gold (a negative-sum asset) and converting it to fiat currency only when needed?

> Countries are run by politicians, bureaucrats, and armed police mafia who care about their paycheck and pensions which wouldn't be so big if not for free moneyprinting at the expense of the citizenry. The people do not have freedom of their choice of money.

Countries are "owned" by their voters. Government debts are your debts. Inflation is just another tax like other taxes. If you are dissatisfied with the current situation, get involved to change it.

I am just stunned by your worldview which I find is wrong in so many ways. It's no wonder that you couldn't muster the intelligence to come up with any profitable strategy at all. It is where the rubber meets the road. Moreover, you go about confidently asserting and spreading your disinformation, attempting to brainwash others with your false beliefs and lies.

> has underperformed

Like I said, 25 is between 10 and 30. It depends what exactly the strategy's performance is, and we don't know what it is for various reasons. I look at it day to day.

> If a profitable pattern exists, what makes you think nobody else has found it and that it will continue to exist in the future?

You with your limited worldview are presupposing that all strategies work because others haven't found them. That's not how they all work. Some work despite the fact or even because of the fact.

> "Dumb money"

A more respectable term is retail traders. Everyone who is in it is on their path of learning, and it's wrong to call a child dumb because the child hasn't grown up yet.

> Why do you suppose professional traders pay for order flow from such traders?

Wrong again. Professional traders specifically discard such retail noise, although I suppose it could be used in certain contexts.

> makes trading a zero-sum activity.

Since you're unfamiliar with the mechanics of trading, if I place an ask for 123.45, and a trade executes at that price, that price then is used to calculate the market cap of a stock. The number has no basis in any zero sum game; it is whatever the buyer last paid.

> Gold cannot achieve this because the amount of gold cannot be adjusted to match the size of the economy as it grows or shrinks

This is your biggest lie yet. As a user of money, despite the propaganda peddled by people like you and by the government, I am not interested in the economy which I consider to be an orthogonal concept. If your lies were the truth, bitcoin wouldn't exist, and gold wouldn't carry value either. Gold was used as a currency for thousands of years, also by the Romans and by the US with a gold-backed dollar. It took Nixon to nix it, who was a criminal.

Yes, gold is detrimental to unsustainable economic growth, but unsustainable economic growth itself is detrimental to existence due to it causing severe environmental issues like climate change. As such, gold is conducive to a somewhat more sustainable economic growth. Anyway, as a user of money, I couldn't care less about the destructive agenda of economic growth.

> Countries are "owned" by their voters.

This is feel-good nonsense. Countries are owned by those with the money.

We are done here. I do not desire to continue a conversation with someone who unquestioningly peddles whatever untruths they've been taught without regard for the actual truth.