Are random trading strategies more successful than technical ones?
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Are random trading strategies more successful than technical ones?
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Re: Are random trading strategies more successful than technical ones?
#2The paper studies trades made on financial market indexes, so over the periods of time measured I wonder if the random strategy they used is about the same as investing in index tracker funds and spreading your buys / sells out in order not to time the market.
Re: Are random trading strategies more successful than technical ones?
#3Re: Are random trading strategies more successful than technical ones?
#4Re: Are random trading strategies more successful than technical ones?
#5>Recently Taleb has brilliantly discussed in his successful books [15], [16] how chance and black swans rule our life, but also economy and financial market behavior beyond our personal and rational expectations or control. Actually, randomness enters in our everyday life although we hardly recognize it. Therefore, even without being skeptic as much as Taleb, one could easily claim that we often misunderstand phenomena around us and are fooled by apparent connections which are only due to fortuity. Economic systems are unavoidably affected by expectations, both present and past, since agents’ beliefs strongly influence their future dynamics. If today a very good expectation emerged about the performance of any security, everyone would try to buy it and this occurrence would imply an increase in its price. Then, tomorrow, this security would be priced higher than today, and this fact would just be the consequence of the market expectation itself. This deep dependence on expectations made financial economists try to build mechanisms to predict future assets prices. The aim of this study is precisely to check whether these mechanisms, which will be described in detail in the next sections, are more effective in predicting the market dynamics compared to a completely random strategy.
I think pundits, academics, experts etc. overestimate the randomness or unpredictability of markets and crowds. Consider this obvious thought experiment: given a choice between having to choose between a $10 bill or a $20 bill on the sidewalk, all else being equal, everyone will choose the $20.That is sorta how investing is. Quality beats crud. There is nothing mystical or unpredictable about it. Determining quality is subjective, but the FAANG index in which each company is worth at least $100 billion has pretty much beaten everything else since 2009.
Also a distinction should be made between fundamental analysis, quantitative analysis, and technical analysis (volume and chart patterns and readings). I think the the first is useful, as the out-performance of FAANG stocks shows. Quant strategies can also be very profitable. The alleged predictive power of technical analysis has long been debunked.
Re: Are random trading strategies more successful than technical ones?
#6This reminds me a bit of a classic paper called "1/N". It compared a portfolio of putting equal money into each security, vs a bunch of fancier approaches. The 1/N almost always won.
Re: Are random trading strategies more successful than technical ones?
#7>Recently Taleb has brilliantly discussed in his successful books [15], [16] how chance and black swans rule our life, but also economy and financial market behavior beyond our personal and rational expectations or control. Actually, randomness enters in our everyday life although we hardly recognize it. Therefore, even without being skeptic as much as Taleb, one could easily claim that we often misunderstand phenome…
I don't have the impression that Taleb's thesis is anything like choosing between two known valued bills on the ground. Maybe it would be more like:
"if you were going to hunt for $20 bills on the sidewalk, which park would you go to? Central Park always does pretty well but if you were to play 'double or nothing' for tomorrow's find, you couldn't guarantee that you'd find a $20 bill there just because you found one there yesterday."
Re: Are random trading strategies more successful than technical ones?
#8>Recently Taleb has brilliantly discussed in his successful books [15], [16] how chance and black swans rule our life, but also economy and financial market behavior beyond our personal and rational expectations or control. Actually, randomness enters in our everyday life although we hardly recognize it. Therefore, even without being skeptic as much as Taleb, one could easily claim that we often misunderstand phenome…
>but the FAANG index in which each company is worth at least $100 billion has pretty much beaten everything else since 2009.
The companies that have seen the largest growth, amid the longest bull market in history, have beaten everything else?
Isn't that pretty much a tautology?
Re: Are random trading strategies more successful than technical ones?
#9>Recently Taleb has brilliantly discussed in his successful books [15], [16] how chance and black swans rule our life, but also economy and financial market behavior beyond our personal and rational expectations or control. Actually, randomness enters in our everyday life although we hardly recognize it. Therefore, even without being skeptic as much as Taleb, one could easily claim that we often misunderstand phenome…
>the FAANG index in which each company is worth at least $100 billion has pretty much beaten everything else since 2009.
In some sense I think this speaks more to the way that the US regulatory framework allows dominant players in a given market segment to retain and reinforce their dominance.
You can argue that these type of investments are "quality" or "safe", but the reasoning behind that label isn't going to be based on any kind financial analysis. There's no path to dethroning these giants or constraining them in any significant way, and as a result they're insulated from market fluctuations that might crash the price of a smaller player.
That's all without going into the feedback loop of safe investments -> more investors -> higher price (or price stability) -> upgraded safety rating -> algorithmic rebalancing of index funds -> higher price -> etc.
Re: Are random trading strategies more successful than technical ones?
#10Doesn't the conclusion indirectly also indicate that day trading is a zero sum game?
If the answer is yes, then the only way you can make money from day trading is from commissions you earn performing day trade on behalf of other parties with money.