Hi Everyone,
There isnât a closed form solution for this issue but more numeric in nature.
The reality is necessity is the mother of invention. If what stands between being just rich and being seriously rich is solving this problem believe me you will come up with something that works.
For myself my style was a function of my floor trading background so was more scalping/swing trading style. When I left CRT and went to the hedge fund/CTA with the help and input of the principle at the fund I moved my setups and methodology to work in the longer term. Then years later with the help of a Serbian programmer I moved my stuff into high frequency. So I have it running with positive expectation in all time frames. It has been my experience and it is my personal belief that unless a methodology has positive expectation across different markets and different time frames it is not robust and should be avoided.
This is a myth that like a vampire or zombie just wonât die.
The big brokerage houses do their own internal studies and every single day run performance/risk algorithms over all their trading accounts. Over the years one of the robust results off these studies is that the vast majority (last one I saw was in the high 90s) of the small accounts lose money. And the highest percentage of the small accounts that lose money are the actively traded accounts.
One of the rare exceptions was Hillary Clinton and her incredible cattle futures trading ability to successfully trade a 10,000 dollar account coupled with the ability to close the account and walk away after eight months with her magic number of $100,000. Los Vegas must live in fear of her coming for a visit.
Thus the real truth is most small guys as a whole do not out perform established funds but instead lose money and eventually have to wind up their business.
However it is true that most big guys had better % returns when they were smaller but that is because when they were small they were an unusual small guy rather than typical small guy. The big guys of today were making money and generating true alpha both when they were small and later when they got big.
If fact the reason they got big was due to alpha generation where as most small guys do not generate ârobustâ alpha so their performance is more due to luck than talent and eventually luck runs out.
As I said above the asset allocators are looking for the Beatles and not a one hit wonder. The majority of the small guys are at best one hit wonders and more typically net losers until they go out of business and if the little guy is not a one hit wonder but ârobustlyâ talented he doesnât stay small but becomes big.
Due to the above performance and risk algorithms used by the brokers to monitor their customer accounts it is impossible for a trading savant to not be discovered by the institutions.
If you are really good the asset allocators find you; you donât have to find them and then sell to them.
This statement is incorrect.
If the first place no one gets a few yards of dollars (do you have an interbank FX background?) under management unless you generate alpha.
I donât know anyone who is successful enough to get a few yards of dollars under management whose methodology is to âkeep punting and hopeâ.
If this is what you think multi billion dollar hedge funds did to get where are they are and to stay where they are then you are wrong.
As a multi billion dollar hedge fund how long do you think you would keep the money and avoid âmassive redemption flowsâ if your methodology is to âkeep punting and hopeâ?
This statement is along the lines of âall you have to do is run faster than Usain Bolt and the gold metal is yoursâ.
Yes like all human endeavor from sports to trading the talented get paid a ton of cash and the average get paid like the average.
I know it appears that like that life long F1 dream of: âIf I could just get in one of those cars I would show Vettel, Alonso, Schumacher etc how its doneâ but it really isnât like that.
In my opinion the main problem small traders face when trying to attract an allocation is they canât pass due diligence due to the catch 22 I referred to earlier.
Now this inability to pass due diligence is a red flag in itself. If a guy was really confident in his method he would be perfectly happy to spend the money to create a business than could pass due diligence.
Also he would have the cash on hand to pay for passing due diligence because his methodology would have ensured he has the cash on hand.
One asset allocator said to me years ago to never invest money with trader that isnât wearing a Rolex submariner. It is a tongue in cheek joke but many a true word was said in jest.
The above is a belief of the academic community the same way the efficient market is a belief of the academic community.
However the proof is not in an academic paper but when the money goes on the line for real.
If the above statements were true then the academic would just repulate the performance of the top hedge funds and charge half the fees and thus put all the hedge funds out of business. It has been tried and the academics found out trading the real market is different than writing about performance attribution in an academic paper.
For me it is like the efficient market theory which may be theoretically right in academic land and all my alpha is just an accident but unlike an academic I would rather be rich than theoretically right with tenure.
What do you mean? There is massive accounts of quantitative data on everyone that is trading.
It starts with the performance/risk algorithms that brokerages run every day on all their accounts from the dentist in Omaha to the biggest hedge funds in the world. The due diligence that goes into a 100 million plus allocation is massive, intrustive and very effective in separating the wheat from the chaff. You donât get the job of allocating billions unless you are pretty dam good at sniffing out robust quality verses the flash in the pan one hit wonder.
The idea so prevalent on this thread that these people allocating billions are mediocre and donât know the difference between alpha and beta is simply wrong.
If you had that and it was robust ie across time, markets, size etc you would be on your way to being the richest man on earth and in several years you wouldnât be running any outside money because your own money would have filled your capacity of billions .
Very true. Which is why most of the money Madoff raised came from naïve HNW individuals and their creepy financial planners since all the pros knew a long position with a risk reversal around it would never have generated Madoffâs risk profile and equity curve.
Most of the professional market wouldnât even do OTC trades with him let alone refer money to him.
When I first left London to work in the Middle East a fund of fund guy came in here to pitch for some funds which including Madoff. The head of asset allocation told him he would maybe consider allocating to the Jew but seeing Madoff was both a Jew and a crook itâs no dice. That was back in the 1990s and even then most of the professional market knew Madoff was dodgy.
All the best to everyone!
Cheers Smoker
There isnât a closed form solution for this issue but more numeric in nature.
The reality is necessity is the mother of invention. If what stands between being just rich and being seriously rich is solving this problem believe me you will come up with something that works.
For myself my style was a function of my floor trading background so was more scalping/swing trading style. When I left CRT and went to the hedge fund/CTA with the help and input of the principle at the fund I moved my setups and methodology to work in the longer term. Then years later with the help of a Serbian programmer I moved my stuff into high frequency. So I have it running with positive expectation in all time frames. It has been my experience and it is my personal belief that unless a methodology has positive expectation across different markets and different time frames it is not robust and should be avoided.
This is a myth that like a vampire or zombie just wonât die.
The big brokerage houses do their own internal studies and every single day run performance/risk algorithms over all their trading accounts. Over the years one of the robust results off these studies is that the vast majority (last one I saw was in the high 90s) of the small accounts lose money. And the highest percentage of the small accounts that lose money are the actively traded accounts.
One of the rare exceptions was Hillary Clinton and her incredible cattle futures trading ability to successfully trade a 10,000 dollar account coupled with the ability to close the account and walk away after eight months with her magic number of $100,000. Los Vegas must live in fear of her coming for a visit.
Thus the real truth is most small guys as a whole do not out perform established funds but instead lose money and eventually have to wind up their business.
However it is true that most big guys had better % returns when they were smaller but that is because when they were small they were an unusual small guy rather than typical small guy. The big guys of today were making money and generating true alpha both when they were small and later when they got big.
If fact the reason they got big was due to alpha generation where as most small guys do not generate ârobustâ alpha so their performance is more due to luck than talent and eventually luck runs out.
As I said above the asset allocators are looking for the Beatles and not a one hit wonder. The majority of the small guys are at best one hit wonders and more typically net losers until they go out of business and if the little guy is not a one hit wonder but ârobustlyâ talented he doesnât stay small but becomes big.
Due to the above performance and risk algorithms used by the brokers to monitor their customer accounts it is impossible for a trading savant to not be discovered by the institutions.
If you are really good the asset allocators find you; you donât have to find them and then sell to them.
This statement is incorrect.
If the first place no one gets a few yards of dollars (do you have an interbank FX background?) under management unless you generate alpha.
I donât know anyone who is successful enough to get a few yards of dollars under management whose methodology is to âkeep punting and hopeâ.
If this is what you think multi billion dollar hedge funds did to get where are they are and to stay where they are then you are wrong.
As a multi billion dollar hedge fund how long do you think you would keep the money and avoid âmassive redemption flowsâ if your methodology is to âkeep punting and hopeâ?
This statement is along the lines of âall you have to do is run faster than Usain Bolt and the gold metal is yoursâ.
Yes like all human endeavor from sports to trading the talented get paid a ton of cash and the average get paid like the average.
I know it appears that like that life long F1 dream of: âIf I could just get in one of those cars I would show Vettel, Alonso, Schumacher etc how its doneâ but it really isnât like that.
In my opinion the main problem small traders face when trying to attract an allocation is they canât pass due diligence due to the catch 22 I referred to earlier.
Now this inability to pass due diligence is a red flag in itself. If a guy was really confident in his method he would be perfectly happy to spend the money to create a business than could pass due diligence.
Also he would have the cash on hand to pay for passing due diligence because his methodology would have ensured he has the cash on hand.
One asset allocator said to me years ago to never invest money with trader that isnât wearing a Rolex submariner. It is a tongue in cheek joke but many a true word was said in jest.
The above is a belief of the academic community the same way the efficient market is a belief of the academic community.
However the proof is not in an academic paper but when the money goes on the line for real.
If the above statements were true then the academic would just repulate the performance of the top hedge funds and charge half the fees and thus put all the hedge funds out of business. It has been tried and the academics found out trading the real market is different than writing about performance attribution in an academic paper.
For me it is like the efficient market theory which may be theoretically right in academic land and all my alpha is just an accident but unlike an academic I would rather be rich than theoretically right with tenure.
What do you mean? There is massive accounts of quantitative data on everyone that is trading.
It starts with the performance/risk algorithms that brokerages run every day on all their accounts from the dentist in Omaha to the biggest hedge funds in the world. The due diligence that goes into a 100 million plus allocation is massive, intrustive and very effective in separating the wheat from the chaff. You donât get the job of allocating billions unless you are pretty dam good at sniffing out robust quality verses the flash in the pan one hit wonder.
The idea so prevalent on this thread that these people allocating billions are mediocre and donât know the difference between alpha and beta is simply wrong.
If you had that and it was robust ie across time, markets, size etc you would be on your way to being the richest man on earth and in several years you wouldnât be running any outside money because your own money would have filled your capacity of billions .
Very true. Which is why most of the money Madoff raised came from naïve HNW individuals and their creepy financial planners since all the pros knew a long position with a risk reversal around it would never have generated Madoffâs risk profile and equity curve.
Most of the professional market wouldnât even do OTC trades with him let alone refer money to him.
When I first left London to work in the Middle East a fund of fund guy came in here to pitch for some funds which including Madoff. The head of asset allocation told him he would maybe consider allocating to the Jew but seeing Madoff was both a Jew and a crook itâs no dice. That was back in the 1990s and even then most of the professional market knew Madoff was dodgy.
All the best to everyone!
Cheers Smoker
