If you had conviction in your indicators you’d go max leverage on trades. You don’t because you know that they do not give you an edge, or one big enough to take actual risk. That’s the difference between our approach. Your trading pnl is probably not too far from random.
Elite Trader School
- Thread starter longandshort
- Start date
Right and that’s a very simple momentum/trend following strategy. You can automate that, though your equity curve will show diminishing returns, and occasional large drawdowns. This is because you are factor loading — or rather, exposing yourself to momentum, which produces very sharp reversals. So it doesn’t matter if you set 1% capital risk per position, because all/most of your positions will move together.
Trend following is a decent strategy, and what you might want to pick up on is portfolio management techniques as provided in the book I linked to. If you manage your portfolio covariance and beta you can improve your risk characteristics to better manage your factor risk. You might not get this, so read that factor primer I linked to first.
Own creations.
I've been doing this for some time now and haven't experienced large drawdowns. Attempting to avoid large drawdowns, like the tech wreck in the early 2000's, is the reason I migrated to this strategy. I was lucky enough to be out of the market in 2008 and 2020 by following the strategy.
I consider myself very risk adverse. The only risk I see in being in cash is that I might miss opportunity.
I don't see the market as risky. The only risk I have is whether I have the discipline to follow the plan. Losses are not a problem unless they are big. I expect to be right about 50% of the time. I expect to make more when I'm right than I lose when I'm wrong.
Why over complicate something?
I tried; honestly I tried, but I got bogged down on the first page. You have to take the information and make it understandable to a 12 year old rather than someone who thrives on academic papers.
The conclusion states ;
"Factor investing is based on the existence of factors that have earned a premium over long periods, reflect exposure to systematic risk, and are grounded in the academic literature."
Not trying to be a smartass but are their any wealthy academics?
Everyone wants to know why the market acts the way it does. It doesn't matter why, what matters is it presents opportunities.
There’s pretty much a revolving door between academia and high finance. Many leading researchers end up launching, cosponsoring, or consulting to hedge funds and investment banks. The factor primer you tried to read is what billions if not trillions of dollars of strategies are based on or benchmarked against.
You can’t understand the opportunity and how to play it if you don’t know much about its nature.
Here are some good resources for a 12 year old:
First: Introducing factors and smart beta | iShares - BlackRock
then: a766ef6b-cd24-4460-8163-900323fc2957 (msci.com)
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This post is about providing traders a foundation in knowledge that they need in order to compete. It does not tell them how to generate excess returns, but it does give them the right information for them to build a good process.
In my previous roles and current trading, I generate absolute unlevered returns averaging high single digits targeting a market beta of 0 and a 2.5+ Sharpe ratio.
If you are far less informed than the average analyst or fund manager, how exactly are you going to outperform?
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12 pages and I had to start at page 2 to catch up.
Evelyn Wood.
Whatever happened to her?
I should have bought the book.
L&S, I saw right from the get-go what you were trying to do here. You weren't telling people how to trade, you were providing quality links of educational value based on your years of experience.
Friggin people... so stupid.
It's like the guy that laid on his horn today when I made a right turn in front of him from a side street, with the light up ahead 2000 yards red as a beet, and staying that way. Its like... "have you no situational awareness?"
Stupid people.
Whatever.
How do you know people didn't listen, alter their path, and in doing so... the prophesy never came true?
Uh-huh... see there....
...dwell on that one for a jif.
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I call BS on that quote's origins. We all like to attribute severe proverbial wisdom to the Chinese people.
Guys, they invented gunpowder and the abacus. That's it. Now they are commies and do nothing but copy everyone else's ideas. F them.
That phrase came from Anne Ritchie's novel in the 1880s. China ain't getting credit for that. They produced the Art of War. Fine. But the phrase ain't in that book, is it? If it was going to be anywhere, it would be in that one, the Chinese's people's greatest tome.
If only people approached trading with this level of rigor!