How many years are necessary to consider yourself a successful trader?

[Gotcha]

It's fairly common for high frequency firms to post returns that are in high double digits. For ultra-high frequency, their capital turnovers are staggering and they do post 100-200% percent returns with double digit Sharpe ratios. It's possible to do in ways that are not very sensitive to latency. For example, I have strategies that produce 50-60% returns on capital with Sharpe ratios of 5+. Unfortunately, the output capacity of those strategies is not sufficient for me.


Majority of funds are incentivized to produce returns that are de-correlated from the markets. It's called the "market neutral mandate", which is probably the key selling point of most hedge funds. Nobody needs to pay 2/20 to go long the market, you can do that by buying some SPYs.
For example, while I am not a stand-alone fund but just a monkey for hire, I have very tight beta limits. This means I can't just go long the market, while an individual investor can (and definitely should). In a year when the market is up 20+% and volatility is down to 5%, I am likely to underperform the market, while in 2008 and 2011 I had triple-digit returns.


First of all, unless the two traders are perfectly systematic, it's very hard to say who does what in terms of analysis. Our brains are complex black boxes and it's likely that @Scataphagos does a lot in his head unconsciously while someone else might need to do it explicitly.
Second of all, most institutional strategies can (and usually are) very simple and literally can be explained on a napkin. Even though the stuff that can sound very intimidating is actually pretty simple once you understand it. The relevant mathematics or financial terms are just a way to express simple ideas.
Complex analysis comes in once you start thinking about execution, managing risk, managing multiple concurrent strategies etc.

Thanks for the excellent reply and throwing some numbers out as well.

 

[sle]

Thanks for the excellent reply and throwing some numbers out as well.

I'll also add that people like to make things sound very complex. Sometimes it's done for sinister reasons, like a car mechanic would to a female customer (*). Sometimes it's done because people do not fully understand the idea themselves and it's hard for them to explain it in words. Sometimes it's done because it makes one sound smart.

 

[TreeFrogTrader]

Majority of funds are incentivized to produce returns that are de-correlated from the markets. It's called the "market neutral mandate", which is probably the key selling point of most hedge funds. Nobody needs to pay 2/20 to go long the market, you can do that by buying some SPYs.
.

Indeed.

 

[jk90029]

Stock market is zero-sum game.

For example, when the index goes from 20000 to 25000, every participant should gain roughly 20% in average during the time.

However frequent traders usually pay lots of money to commission and tax.

In my guess, most successful trader is NOT a frequent player.

 

[sle]

Stock market is zero-sum game.

No, the stock market is not a zero sum game in absolute sense. I am not sure how this particular myth is perpetuated, since it's a bit counterintuitive (*). Neither are the debt or commodity markets. Only derivatives market is. Do you want me to elaborate further on that?

This said, the impact of transaction costs (as well as other frictions) is huge and most people underestimate it. So your guess definitely applies to investors.

(*) There is a classic paper by Sharpe about investing being a zero sum game, but it was talking about relative performance of active investors with respect to the benchmark index. The gist of it is that the sum of asset-weighted performances of all investors (both losers and winners) will equal the overall performance of the market.

 

[neke]

For example, when the index goes from 20000 to 25000, every participant should gain roughly 20% in average during the time.

Are you talking of buy-and-hold investors or (elite) traders? There is not that kind of correlation in performance for most short-term traders that are profitable. My best year in the last 10 has been 2008. Yet we know what the market did then. There are as my strategies as there are traders, and unless you know what those are, you can only speak for yourself on expected profitability.

 

[jk90029]

My best year in the last 10 has been 2008.

Likewise, I like 2008 market based on personal trading logic.
However thing is NOT in favor of me recently.

Hope both will be happy next few years.

 

[jk90029]

The gist of it is that the sum of asset-weighted performances of all investors (both losers and winners) will equal the overall performance of the market.

Probably I mean same as yours.
Forgive my low proficiency in English.

For example, Poker is quite close to derivative in ZERO-SUM sense.
Stock (equity) market is quite close to real estate market in ZERO-SUM sense.

 

[sle]

Forgive my low proficiency in English.

I think you’re going all right

 

[satyaveer]

frenz i am new to the Day trading world ,
I have found most of day trading community talk about trading Stocks in Play .
For me its been very difficult to find new stocks every day , i loose focus and start doing overtrading .
Is it okay to trade same stock every day for a long period of time like 2-3 months or a year ??

I will be greatful if anyone can help me with that .

Thanks