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Trading Is Hazardous to Your Wealth [pdf] (2000)

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Re: Trading Is Hazardous to Your Wealth [pdf] (2000)

#71

Post by bugzz »

chrischattin wrote: post #55
lend000 wrote: post #26

If markets were truly random, you might expect 50% of day traders to lose money, not 90%. Of course, markets are not random and most untrained humans have emotional biases that actively optimize for losing money in markets. This is likely a controversial opinion: 90% of the time, someone who wants to break out of the "rat race" or achieve wealth for some future vision should go the startup route, or if the wealth par…

This is absolutely right. I'm handily beating the market with an automated strategy I designed to the point I've all but shut down my startup/programming consulting business. What the system trades, and what I understand intellectually is the right thing to do, is often very hard to stomach emotionally.

What platform do you trade on?

Re: Trading Is Hazardous to Your Wealth [pdf] (2000)

#72

Post by nullandvoid »

chrischattin wrote: post #55
lend000 wrote: post #26

If markets were truly random, you might expect 50% of day traders to lose money, not 90%. Of course, markets are not random and most untrained humans have emotional biases that actively optimize for losing money in markets. This is likely a controversial opinion: 90% of the time, someone who wants to break out of the "rat race" or achieve wealth for some future vision should go the startup route, or if the wealth par…

This is absolutely right. I'm handily beating the market with an automated strategy I designed to the point I've all but shut down my startup/programming consulting business. What the system trades, and what I understand intellectually is the right thing to do, is often very hard to stomach emotionally.

Do you have a background in finance / any recommended reading?

I've spent a lot of time on a automated trading side project of mine but haven't found the strategy yet.

In retrospect time has been spent in completely the wrong areas ( setup a solid backrest platform first, duh )

Re: Trading Is Hazardous to Your Wealth [pdf] (2000)

#73

Post by jaredtn »

bugzz wrote: post #69
jaredtn wrote: post #67

Earlier quoted context omitted.

If I roll a 100-sided dice that pays me $99 if I roll a 1 and -$1 if I roll 2-100, then my expected value is $0, but my chance of profitability is 1%.

He's saying that traders don't just make 1 bet in their lifetimes though.

True, but you have to account for the chance of ruin. Once you go broke, you have to stop betting. Many traders will continue betting larger and larger amounts of money when they win, but stop betting if they lose big. Making risky bets is quite likely to make you go broke, especially if you scale the size of your bets with the size of your bankroll. The [Kelly Criterion](https://en.wikipedia.org/wiki/Kelly_criterion) is the best way to approach it.

Re: Trading Is Hazardous to Your Wealth [pdf] (2000)

#74

Post by bugzz »

starpilot wrote: post #58
lend000 wrote: post #26

If markets were truly random, you might expect 50% of day traders to lose money, not 90%. Of course, markets are not random and most untrained humans have emotional biases that actively optimize for losing money in markets. This is likely a controversial opinion: 90% of the time, someone who wants to break out of the "rat race" or achieve wealth for some future vision should go the startup route, or if the wealth par…

If markets were truly random, I'd expect (approaching) 100% of day traders to lose money (or gain 0), because the expected value is 0. It's like betting on a coin flip. Since we're at 90%, it's pretty close.

Huh? Doesn't your argument also mean that you'd expect nearly 100% to make money, or lose 0?

Re: Trading Is Hazardous to Your Wealth [pdf] (2000)

#75

Post by Matheus28 »

Apes wrote: post #29
alexandercrohde wrote: post #14

It's my understanding that, if commissions are free (e.g. Robinhood) then on average, any trading strategy is going to perform comparable to the market average. If you can find any reliably bad strategy (in a fee-less market), then you have necessarily found an outperforming strategy that is the opposite.

Your theory only works with a perfectly efficient market. In practice, even without commissions, there are many other sources of inefficiency in the market that act to reduce your returns every time you trade. The bid/ask spread is an example of such an inefficiency. Take a hypothetical case where you just buy and sell the exact same stock over and over, but the price of the stock never changes. Every time you comple…

> What's the opposite of this strategy?

Being the market maker creating that spread. Who also gets financial incentives from the exchange for doing so.

Re: Trading Is Hazardous to Your Wealth [pdf] (2000)

#76

Post by tlb »

ashtonkem wrote: post #18
WalterBright wrote: post #10

I read an article a few years ago that compared the trading performance of various strategies. The number one performer was the "dead people" strategy, which happens when a person dies and his portfolio cannot be traded while the inheritance issues are sorted out. Next best is the broad index fund, and dead last was the average investor. Edit: Found the article! https://www.businessinsider.com/forgetful-investors-per…

What’s the difference between the dead person strategy and an index fund? The dead strategy involves whatever stocks they had selected at the time?

Index funds have a deterministic algorithm to balance the portfolio. Hedge funds can predict this and always be slightly ahead. So whenever an index fund's algorithm says to buy more of something, a hedge fund probably bought it a fraction of a second ago and will now sell it to the index fund at a slightly higher price.

At least, version 1 of hedge funds did this to version 1 of index funds. It's now so complicated that all you can count on is the smartest, fastest-moving guys having a slight edge.

Re: Trading Is Hazardous to Your Wealth [pdf] (2000)

#77

Post by jaredtn »

H8crilA wrote: post #32
lend000 wrote: post #26

If markets were truly random, you might expect 50% of day traders to lose money, not 90%. Of course, markets are not random and most untrained humans have emotional biases that actively optimize for losing money in markets. This is likely a controversial opinion: 90% of the time, someone who wants to break out of the "rat race" or achieve wealth for some future vision should go the startup route, or if the wealth par…

This is not why the 90/50 contrast exists. It exist due to "absorption barriers", due to the ergodicity of the process - betting too big and hitting "uncle points". It's a bias present in most people, especially otherwise intelligent people: not understanding that there is a huge difference between expected value and ergodic properties. Between expected returns and risk. Just look up what VaR is, the concept is ridic…

Great point! The "uncle point" is a great phrase I hadn't known before.

Re: Trading Is Hazardous to Your Wealth [pdf] (2000)

#78

Post by fredophile »

lend000 wrote: post #26

If markets were truly random, you might expect 50% of day traders to lose money, not 90%. Of course, markets are not random and most untrained humans have emotional biases that actively optimize for losing money in markets. This is likely a controversial opinion: 90% of the time, someone who wants to break out of the "rat race" or achieve wealth for some future vision should go the startup route, or if the wealth par…

A lot of day traders use leverage. As a result any sufficienty large downward move will result in a margin call and they have to take the loss. Being correct about the overall direction but having bad timing is the same as being wrong.

Re: Trading Is Hazardous to Your Wealth [pdf] (2000)

#79

Post by chrischattin »

rsp1984 wrote: post #62
chrischattin wrote: post #55

Earlier quoted context omitted.

This is absolutely right. I'm handily beating the market with an automated strategy I designed to the point I've all but shut down my startup/programming consulting business. What the system trades, and what I understand intellectually is the right thing to do, is often very hard to stomach emotionally.

May I ask how you got started? What is the tech stack you are using today? Any resources you can recommend?

Sure. I graduated with a business degree (b.s. in management, specifically) and just kept on learning everything I could get my hands on about finance, valuing derivatives, human behavior and biases, etc, on the side through a couple of different careers. I used to bring Buffett's shareholder letters on trips when I was a pilot, for example. I've been a big nerd about this stuff for a long time and the strategy I built is the culmination of knowledge from a wide range of experiences and studying all fitted to my personality and goals.

Tech stack: I love Ruby, but use Python and a custom language that interfaces with the broker I'm using for execution. More and more decent broker API's are starting to pop up out there. So, you can likely use whatever you're most comfortable with. Alpaca has a decent web API, for example.

I honestly wouldn't recommend getting into it, though, unless you really enjoy geeking out over this stuff and have a decent breadth of knowledge to find your edge. You're also competing against some brilliant PhD types who are just as obsessed and hard working as you. My stuff works in part because it's taking advantage of some things that are too small for the big boys to pay attention to.

Re: Trading Is Hazardous to Your Wealth [pdf] (2000)

#80

Post by nostromo »

clairity wrote: post #38
nostromo wrote: post #15

Earlier quoted context omitted.

Because there are some very rich traders, including the fourth-richest person in the world.

he's an investor, not a trader, and has outsized influence on the outcomes of his investments.

A distinction without a difference. He is an active trader that moves in and out of businesses all the time.

In fact, he just dumped all of his airline stock recently due to Covid-19.

It doesn't matter if you trade based on research or not, you're still a trader.

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