Refinements for Retail Traders

M

Magic

What do you guys think are some of the best low-hanging fruits for retail traders to capitalize on? Let’s assume we have portfolio margin but less than $1mm in size.

Short of building a proprietary strategy with clear edge what are some refinements your intelligent retail trader can take advantage of?

Here are two things that come to my mind:

1. Freedom from risk controls; we can absorb more risk, institutions have to deal with redemptions in deep drawdowns and the volatility drag eats away at returns. Positive expected value strategies like short vol, short gamma can be capitalized on by retail guys as long as they size properly.

2. Diversification. This isn’t really a retail-only advantage but still a great refinement. Very easy to find superior risk-adj returns vs. 100% long stock and just use leverage to solve for the same risk, but capture low double digits returns instead of 9% average CAGR of the SPY.

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Are there additional conceptual refinements short of getting heavy into quantitative analysis / short term strategies out there? I’m currently projecting returns into the ~15-20% / year range but carrying potential DD of 40-50% for a 3 sigma move.. not sure where the best area to apply my time and effort is to get the next step up in risk adjusted returns.

Seems like TA rules-based strategies, coding / back-testing to find mispriced options opportunities, or getting a feel for order flow are some common avenues for the next order of magnitude but there’s much debate accompanying the veracity of each of those strategies.
 
Overnight said:
1 million bux cash in a futures trading account? Once you have that, you are invincible trading 1-2 contracts. You'd be the golden child.
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You’re completely missing the point. Futures add leverage... no inherent increase in expectancy. Sure you’re able to withstand drawdowns easily with a variety of strategies with 1-2 contracts, but so what? Return on total capital / risk absorbed dictates how efficiently you can grow your capital. I already talk to plenty of people that don’t have the perspective to think much beyond absolute returns... without considering dimensions of risk and time you not going to get very far in the realm of trading imo. Optimization with regard to those aspects is what I’m interesting I hearing feedback about.
 
Magic said:
Are there additional conceptual refinements short of getting heavy into quantitative analysis / short term strategies out there? I’m currently projecting returns into the ~15-20% / year range but carrying potential DD of 40-50% for a 3 sigma move.. not sure where the best area to apply my time and effort is to get the next step up in risk adjusted returns.
More...
Small size allows for playing various capacity constrained opportunities. It also allows for more cross-sectional diversification and more importantly for more choices. E.g. if you are playing some single-stock specific effect (let's for simplicity say mergers), and you need to deploy a million you have get involved in 2000 mergers, while a man with a 100 million probably can involved in 100.
 
sle said:
Small size allows for playing various capacity constrained opportunities. It also allows for more cross-sectional diversification and more importantly for more choices. E.g. if you are playing some single-stock specific effect (let's for simplicity say mergers), and you need to deploy a million you have get involved in 2000 mergers, while a man with a 100 million probably can involved in 100.
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I have heard capacity constraints mentioned several times as a retail advantage. Makes sense that good expectancy would continue to exist in certain spots that are comparatively insignificant for larger pools of capital to spend time and effort on.

Do you have any suggestions on a thread to start picking at in order to explore this further? I’ve heard talk of selling index vol against buying it back in smaller single names that aren’t priced as efficiently. Also you mention stock events; do you feel things like earnings/mergers in lesser known names are still priced relatively generously at times? That’s it’s attainable for retail to consistently harvest value there short of having professional infrastructure/data?
 
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