ES Journal - 2019/2020

[Buy1Sell2]

Too many small businesses going under.
See XLF today? Its still under $25.
Its been almost 2 months.

That milk's gone sour B1.

Financials continue to look excellent here and poised for a huge run-up. Looking real good in my view.

 

[Laissez Faire]

The point you are missing and you are not alone is that the algo's are not based on some esoteric mysterious calculus but are based on traditional price behavior.

How did you infer that I missed that point?

I'm no expert on algorithms, but I'm quite sure they range from very, very basic to quite complex and elaborate. Some algorithms are HFT - others are not.

The point I was making is merely what I'm repeating above which is that algorithms are as varied as everything else in the markets. As such - it's hard to generalize the resulting behavior from algorithms.

But feel free to elaborate on your clam that algorithms are being based on traditional price behavior and not complex calculus.

 

[speedo]

Of course they are varied. Institutions have their own trade plans but they are all written by people who are examining price action, retracement levels, measure move targets, stair step patterns etc etc. If you understand price, you can discern what algo's are doing what at critical levels....that's it over and out. ciao

 

[Laissez Faire]

Of course they are varied. Institutions have their own trade plans but they are all written by people who are examining price action, retracement levels, measure move targets, stair step patterns etc etc. If you understand price, you can discern what algo's are doing what at critical levels....that's it over and out. ciao

Okay.

It's possible that there are institutions that have algorithms that are based on price action and price patterns. To be honest, it's the first time I've heard of that.

I'm sure most algorithms aren't chart based, though, and while the calculus may not be esoteric, there's certainly a lot of high level math involved in some of them.

 

[vanzandt]

Financials continue to look excellent here and poised for a huge run-up. Looking real good in my view.

Based on what?
You said that 2 months ago and they haven't budged.
We all make bad calls B1. Own your mistake buddy.

 

[syswizard]

Based on what?
You said that 2 months ago and they haven't budged.
We all make bad calls B1. Own your mistake buddy.

Exactly Zandty....especially the big banks:
1) no net interest margin
2) few new loans being made; stringent criteria
3) hugh loan default write-offs
Their only hope is in their fixed income and equity trading divisions.

 

[speedo]

I highly recommend reading The Man Who Solved the Market, a book about Jim Simons and the Renaissance/Medallion Funds. They made hundreds of billions of dollars and easily out-returned such as Soros, Cohen, Dalio etc. Simons was not a trader but a mathematician and math professor who had an intense interest in the markets...and making money.

He assembled a team of other mathematicians, theoretical physicists, data and computer scientists. They amassed vast amounts of data and when they crunched the numbers, they first discovered that price had repeatable patterns and much to their surprise, the most efficient time frame to exploit those patterns was on the FIVE MINUTE CHART. So they programmed their trades which could be hundreds of markets simultaneous based on such a model.

Moral of the story, the biggest whale in the sea wrote algo's off 5 minute patterns which were in the market long before they entered the arena.

 

[Buy1Sell2]

Based on what?
You said that 2 months ago and they haven't budged.
We all make bad calls B1. Own your mistake buddy.

Has the call lost money?

 

[virtusa]

...They amassed vast amounts of data and when they crunched the numbers, they first discovered that price had repeatable patterns and much to their surprise, the most efficient time frame to exploit those patterns was on the FIVE MINUTE CHART. So they programmed their trades which could be hundreds of markets simultaneous based on such a model.

This confirms my view that:

• patterns exist.
• patterns based on past data can work in futur.
• pattrens repeat themselves, also in futur.
• testing a system on past data makes sense.

There are however a lot of "elitetraders" who don't agree with that.

 

[Laissez Faire]

He assembled a team of other mathematicians, theoretical physicists, data and computer scientists. They amassed vast amounts of data and when they crunched the numbers, they first discovered that price had repeatable patterns and much to their surprise, the most efficient time frame to exploit those patterns was on the FIVE MINUTE CHART. So they programmed their trades which could be hundreds of markets simultaneous based on such a model.

It's quite amusing that you want to close this argument regarding the simplicity of algorithms referencing Jim Simons and his Medallion Fund which most likely uses very complex math and strategies.

I read the book and I agree it's a great read, but I don't believe there was any reference to 5-minute charts, but it was said that they saw improved results going from the 30-minute time frame to the 5-minute time frame.

Remember - a chart is only a visualization of one set of numbers. Quants generally don't analyze charts. They are more likely to use math and statistics.

Very little is known about what Medallion actually do, but I would be very, very surprised if their core strategy is based on 5 minute chart patterns.

Today, Medallion uses dozens of "strategies" that run together as one system. The code powering the fund includes several million lines, according to people familiar with the company. Various teams are responsible for specific areas of research, but in practice everybody can work on everything. There's a meeting every Tuesday to hash out ideas.

In the early days, anomalies were easy to spot and exploit. A Renaissance scientist noted that Standard & Poor's options and futures closing times were 15 minutes apart, a detail he turned into a profit engine for a time, one former investor says. The system was full of such aberrations, he says, and the scientists researched each of them to death. Adding them all up produced serious money — millions at first, and before long, billions.

But as financial sophistication grew and more quants plied their craft at decoding markets, the inefficiencies began disappearing. When Mercer and Brown joined they were assigned to different research areas, but it soon became apparent they were better together than apart. They fed off each other: Brown was the optimist, and Mercer the skeptic.

"Peter is very creative with a lot of ideas, and Bob says, 'I think we need to think hard about that,' " says Patterson. They took charge of the equities group, which people say was losing money.

"It took them four years to get the system working," says Patterson. "Jim was very patient."

The investment paid off. Today the equities group accounts for the majority of Medallion's profits, primarily using derivatives and leverage of four to five times its capital, according to documents filed with the US Department of Labor.

"You need to build a system that is layered and layered," Simons said in a 2000 interview with Institutional Investor, explaining some of the philosophy behind the firm and the Medallion model.

"And with each new idea, you have to determine: Is this really new, or is this somehow embedded in what we've done already?"

Once that's determined, the team would figure out how much weighting to give it. Signals may eventually go cold over time but will usually be kept around because they can sometimes reemerge — or have unintended consequences if removed. A source says positions are held anywhere from seconds to seasons.

At the 2013 conference, Brown referenced an example they once shared with outside Medallion investors: By studying cloud cover data, they found a correlation between sunny days and rising markets from New York to Tokyo.

"It turns out that when it's cloudy in Paris, the French market is less likely to go up than when it's sunny in Paris," he said. It wasn't a big moneymaker, though, because it was true only slightly more than 50 per cent of the time.

Brown continued: "The point is that, if there were signals that made a lot of sense that were very strong, they would have long ago been traded out. ... What we do is look for lots and lots, and we have, I don't know, like 90 Ph.D.s in math and physics, who just sit there looking for these signals all day long. We have 10,000 processors in there that are constantly grinding away looking for signals."

In addition to language specialists, astrophysicists have historically had an outsize impact on the system's success, according to people familiar with the firm. These scientists excel at screening "noisy" data. String theorists have also had a major role, and the Della Pietra brothers — who reunited with their former IBM bosses to work on equities — were the first of many with that background.

The identical twins, now 56, have never strayed far from each other: They took an honours science program at Columbia University as high school students; attended Princeton as undergraduates, studying physics; and received doctorates from Harvard in 1986.