Human Traders Are Trouncing the Machines

[schweiz]

You'd actually be surprised. I've worked buy and sell side, machines are only information. You've got to think outside of the box to make it in trading.

Algo's can help but they aren't the answer.
You need to be smarter than Wharton and Harvard grads, not in everything, just in trading. You find one true edge and you'll be a multimillionaire in less than a year, no algo can do that.

well said.

it is not: humans or machines.
it is: humans and machines.

like in everything you need the best of both worlds. use the benefits of both worlds and avoid the bad parts of them.

 

[d08]

You'd actually be surprised. I've worked buy and sell side, machines are only information. You've got to think outside of the box to make it in trading.

Algo's can help but they aren't the answer.
You need to be smarter than Wharton and Harvard grads, not in everything, just in trading. You find one true edge and you'll be a multimillionaire in less than a year, no algo can do that.

One true edge isn't enough with the capital most people have at hand. Say $50k which seems to be a lot for many even on ET - it's unreasonable to expect to make multiple millions with normal risk (with this amount). It's possible if the market is just perfect for what you're doing but the likelihood of that isn't good.

With AI, humans are becoming unnecessary (we're still not there though).
I'm also not entirely sure you need to think outside the box - I'd say you just need persistent hard-work to analyze and exhaust all ideas. There's creativity involved and some smarts but you don't need to be the smartest guy to do that.
There are probably geniuses who don't need to look at data and can just create amazing trading ideas out of the air but I haven't met anyone like that yet.

 

[lovethetrade]

Systematic trading has wider draw downs and their upside has taken a nose dive now that that arena is so crowded. Discretionary traders typically use a rules based approach to minimize emotions. Programming automated strategies is pretty easy these days. Even I can program on 4 different platforms and I am just playing with it for kicks.

Systematic traders do have to deal with emotions- after all they can have large draw downs and often shut them down at the wrong time - that was in Market Wizards. The problem is few retail will have the conviction and or account size to let them run in expanding draw downs. Systematic trading has its place - but to proclaim it is wildly superior to discretionary is just lying to yourself.

Barclays

That's one institution with a wealth of information at their disposal comparing 2 funds and approaches. What about industry averages? It would be very interesting to see how retail systematic and discretionary (manual) traders compare due to information asymmetry.

 

[DeltaRisk]

One true edge isn't enough with the capital most people have at hand. Say $50k which seems to be a lot for many even on ET - it's unreasonable to expect to make multiple millions with normal risk (with this amount). It's possible if the market is just perfect for what you're doing but the likelihood of that isn't good.

With AI, humans are becoming unnecessary (we're still not there though).
I'm also not entirely sure you need to think outside the box - I'd say you just need persistent hard-work to analyze and exhaust all ideas. There's creativity involved and some smarts but you don't need to be the smartest guy to do that.
There are probably geniuses who don't need to look at data and can just create amazing trading ideas out of the air but I haven't met anyone like that yet.

I'd have to say that's only partially correct.
50K is not enough, unless you're trading out of a professional account.
Some props do allow more than equities.
(Haircut is really the only way.)

But leverage and risk are two very different things.

 

[SunTrader]

I read that editorial and have a few comments:
1. If you look at the recent performances, nobody has any alpha, especially none that beats S&P 500.

Exactly. including the vaunted machines that will rule the world of finance - cue Dr Evil Wahahahaha.

 

[murray t turtle]

While I trade with a rules based descretionary bent personally, I can see how certain styles certainly would lend themselves to more of an automated system.

But, my question is outside of RenTec'and a few high profile/huge infrastructure players, who is making all these returns with automation, etc. ?

I' m not saying it's not happening, but I don't know who. ..anyone have specific examples of small/midsize managers ? the ones I have come across (day job in Wealth Management) have ave returns at best even with supposedly lower deviation/Sharpe ratio factored in.

%%
VIRT, most market makers, specialist$, Knight Capital . Well Knight Capital got 7 out of eight computers right = right=tough business. Dont know any small systems managers. Some one said i was making a prediction this year when i said markets can not be predicted+ i dont consider anything in this post a prediction. LOL

 

[murray t turtle]

I googled Princeton geeks and came up empty handed. Who are they and what were they doing?

%%
Well they were not masters of the universe; + some had more than 5 losses in a row. BUT market trended better then.OK 2017 is not over yet

Frankly , Ironchief,with my trading plan; markets dont trend enough for me to have 5 losses in a row LOL.NOT making a prediction-thats a plan....

 

[syswizard]

like in everything you need the best of both worlds. use the benefits of both worlds and avoid the bad parts of them.

Interesting thought....
so the implementation is to backtest your strategy and then execute with some discretion ?

 

[schweiz]

Interesting thought....
so the implementation is to backtest your strategy and then execute with some discretion ?

it's all about your own abilities and knowledge:

• how good are you in programming?
• can you write down your tradeplan in such a way that it is programmable?
• do you trust your programmer and will he not steal what you created?
• do you have the discipline and nerves to trade discretionary?
• maybe the only option is discretionary for certain reasons
• or maybe automated programs are the only option
• etc...

so for each person the answer can be different. the best solution is of course fully automated. start the machine, go on holidays all year and check every day how many millions the machine made for you. just check the trading companies that go for the machines and watch their real performance. discretionary can still beat most of them in my opinion.

 

[murray t turtle]

it's all about your own abilities and knowledge:

• how good are you in programming?
• can you write down your tradeplan in such a way that it is programmable?
• do you trust your programmer and will he not steal what you created?
• do you have the discipline and nerves to trade discretionary?
• maybe the only option is discretionary for certain reasons
• or maybe automated programs are the only option
• etc...

so for each person the answer can be different. the best solution is of course fully automated. start the machine, go on holidays all year and check every day how many millions the machine made for you. just check the trading companies that go for the machines and watch their real performance. discretionary can still beat most of them in my opinion.

%%
Mostly does beat, as you hinted , MODERN TRADER magazine NOV,2017 noted it also.