Anyone have hard numbers on if/by how much quants outperform old fashioned techniques like flags and finding stocks that tend to go the opposite direction from the one you're interested in? I don't know the terminology for all this but I know there are limits due to uncertainty so even the best algorithms may not do much better that someone guessing. Do quants do 10% better, 2x better, 10x better?
My Dad and I had a relatively lucky streak where we doubled our money day trading Apple on margin after the September 29, 2000 dot bomb:
He saved quite a bit of money by being able to trade 1000 shares each time. Since the stock swung +/- 2% a couple of days a week it was pretty easy to make 2% most days, 5% on a good day. It was like a casino where the odds were 2% in your favor, with a ratchet that just sold when it was about to go down. Then you just guess the shape of the day’s heartbeat. He wouldn't even let me sell short because he felt it was unethical, so we only gained half what we could have which was agonizing to endure. I pleaded for him to get out because he was up a couple years of my wage at the time and my gut was screaming at me that something wasn't right. Then we lost all the gains the day 9/11 happened. We sold a few weeks later and ended up breaking even. Then Apple went to 500 over the next couple years with splits thrown in to boot.
I wanted to try day trading myself but they changed the law in 2001 so you had to have $25,000 to trade on margin, so only the wealthy could get twice the gains:
I personally don’t buy any of the standard advice about risk because it’s more risky to keep your money in a bank and only get a couple percent a year. I felt so miserable about the whole experience that I worked a bunch of dead end jobs and ran up my credit cards over the next several years. It’s heartbreaking to know how hard typical folks in the world work to make $100 a day when day trading $50,000 can easily earn $1000. But those folks don’t have $50,000 so are locked out. I guess in my heart it felt like stealing, or at the very least finding yourself in the universe where you won and thinking you somehow earned your survivor bias. So I don’t do it anymore, and I’m even hesitant to invest because politics are so volatile right now. Sorry to digress, I should have stopped at the first paragraph.
I don't do this, but there is a place without any rules, 24/7 trading, wild volatility, and tons of dumb money. This place is cryptocurrencies. Supposedly it's a lot easier to trade in these markets, less competition, less money needed. I used to laugh at my brother, but he turned $20k into $300k, so it is possible.
Well, crypto markets have much better odds than the lottery right now. Even without understanding the nitty gritties, if you just diversify in the top 10-20ish coins, and set sensible stop losses, you are in a very good position to come out ahead.
The Dutch tulip bulb market also had great odds in 1635. How did that work out?
Stop loss orders are ineffective when markets lose liquidity and experience sharp price discontinuities.
Sorry to digress, I should have stopped at the first paragraph.
No, it's good digression, and it brings back fun and painful memories, as I made and lost money at that time.
Trading on margin is something rookies should avoid. It's the easiest way to lose money.
The thing I don't understand is this noise about shorting being unethical. You have more to lose than anybody in the game, and you're not breaking any rules.
But even with all of those advantages, you didn't make $1000 a day. You broke even and almost lost money. In order compare to someone making $100/day you need to make money consistently for a long term. No one can consistently turn $50k into $365k/year because if you keep making bets like that, you eventually lose just as big as you win.
> Anyone have hard numbers on if/by how much quants outperform old fashioned techniques
From the article, "In the past five years, quant-focused hedge funds gained about 5.1% a year on average. The average hedge fund rose 4.3% a year in the same period."
Meaningless for telling us the distribution of returns across all hedge funds.(It is very likely a Pareto distribution with, or even more skewed, with a small percentage of funds making the majority of returns.)
Interestingly, what these averages do tell us is that the average hedge fund return is not much, if at all, better than the average index fund return, with the index fund return graph being much more uniform in variance.
And without knowing the distribution, we have no idea whether the difference in quant funds vs non-quant funds is distinguishable from zero. Whenever someone tells you the difference between two averages and nothing more, you should assume they are "lying" with statistics.
> I wanted to try day trading myself but they changed the law in 2001 so you had to have $25,000 to trade on margin, so only the wealthy could get twice the gains: https://en.wikipedia.org/wiki/Pattern_day_trader
This is how the rich get richer and the poor get poorer. The rich can trade on margin, pay less tax (capital gain tax is lower than even income tax), and have many more other opportunities. The middle class is shrinking for a reason.
This is ridiculous. Poor people aren't going to get rich by day trading on 2x margin. And if someone in the US seriously wants to get into margin trading it's not that tough to scrape together $25k by getting a second job and living frugally for a couple years.
Also if you have decent credit you can simply take out an unsecured personal loan for $25k and deposit that in your trading account. This is effectively the same thing as trading on margin.
Why do the poor have to get a second job in order to get 2x margin? Why do they have to jump through the hoop when the rich don't have to? If the poor have $2,000, why cannot they use margin as leverage? The opportunities are not equal there.
If the margin trading limit was lower then the news would be full of sob stories about how greedy brokerages let unsophisticated people get in over their heads and then took their life's savings on a margin call. Sometimes stocks go down.
It is not fair for everyone. But this is an artificial, unneeded hoop that could be easily removed. If we set it at $25,000, does that prevent "unsophisticated people take their life's savings on a margin call"?
You're speaking of long term capital gains. Day trading results in short term gains which are taxed at regular income rates. Margin accounts are also generally foolish; a way to lose money. They are not usually at favorable rates.
The rate for margin is yearly 8% for my brokerage account. The NASDAQ has gone up 15% since Trump got elected. If you use it wisely, it is great leverage. The poor don't even get to use it. They are completely shut out of the opportunity.
How much leverage do you think a poor person should take for speculating in the stock market? 15% annual return on nothing is still nothing. For most poor, doubling salary would have dramatically more impact than doubling their savings account.
This says how disconnected you are from the reality. Many Americans don't even make $100 a day. $10,000 investment plus $10,000 margin multiplied by 15% is significant for many people to buy food and pay rent.
Oh boy. Your criticism is that I overestimate wages and your counter-example is a $10,000 investment? "Nearly half of Americans would have trouble finding $400 to pay for an emergency" (https://www.theatlantic.com/magazine/archive/2016/05/my-secr...). How are these sub-$100 per day folks going to scrape together $10,000 for investing?
Anywhere below $25,000 does not get the opportunity to use the margin. $10,000 is still far from hoop. $100 per day will get you $2,500 per month conservatively. For a few months of tight pants, you will be able to save enough for $10,00-. You are missing the point here. It is about the principle. Everybody is created equal and should get equal opportunities (at least in terms of law).
I agree with the principle of equal opportunity, but I disagree with the implementation. Providing the "opportunity" to buy stocks on margin to people with less than $25k in their accounts is more like selling cigarettes than selling education.
Just today I noticed a sign posted in the window of my corner store, "Customers of [convenience] store won $1,490,823 from [state] lottery in 2016!" I wish it were required to post the total paid as well. It'd be much better for the public if the sign read, "People in your neighborhood paid $3 million to the state lottery and only won $1 million back."
Similarly, if the brokerage is going to offer margin accounts, they should post easy to understand statistics on how much customers earn and spend. A nice histogram showing returns with sliders to select a bucket for initial amounts invested and proportion bought on margin.
Enforcing free information access is another way that governments can help provide equal opportunity.
My Dad and I had a relatively lucky streak where we doubled our money day trading Apple on margin after the September 29, 2000 dot bomb:
http://money.cnn.com/2000/09/29/markets/techwrap/
He saved quite a bit of money by being able to trade 1000 shares each time. Since the stock swung +/- 2% a couple of days a week it was pretty easy to make 2% most days, 5% on a good day. It was like a casino where the odds were 2% in your favor, with a ratchet that just sold when it was about to go down. Then you just guess the shape of the day’s heartbeat. He wouldn't even let me sell short because he felt it was unethical, so we only gained half what we could have which was agonizing to endure. I pleaded for him to get out because he was up a couple years of my wage at the time and my gut was screaming at me that something wasn't right. Then we lost all the gains the day 9/11 happened. We sold a few weeks later and ended up breaking even. Then Apple went to 500 over the next couple years with splits thrown in to boot.
I wanted to try day trading myself but they changed the law in 2001 so you had to have $25,000 to trade on margin, so only the wealthy could get twice the gains:
https://en.wikipedia.org/wiki/Pattern_day_trader
I personally don’t buy any of the standard advice about risk because it’s more risky to keep your money in a bank and only get a couple percent a year. I felt so miserable about the whole experience that I worked a bunch of dead end jobs and ran up my credit cards over the next several years. It’s heartbreaking to know how hard typical folks in the world work to make $100 a day when day trading $50,000 can easily earn $1000. But those folks don’t have $50,000 so are locked out. I guess in my heart it felt like stealing, or at the very least finding yourself in the universe where you won and thinking you somehow earned your survivor bias. So I don’t do it anymore, and I’m even hesitant to invest because politics are so volatile right now. Sorry to digress, I should have stopped at the first paragraph.