The Most Sure-fire Hedge Fund Possible

[Pekelo]

Quote from brettman9:

You start a hedge fund. You hire 100 novice traders. You match their capital 3:1.

I already posted this idea 3 years ago. Get in line!

P.S.: Good ideas get discovered usually by more than 1 people... See that thingy called radio.

Quote from Pekelo:

Well, because he might not be consistent enough. Consistency is the key. After 2 bad months he can have 1 good month and so forth, screwing up your average.

By playing 10 or more people you can be sure that 80-90% of them consistently will lose money...

Here is my evil plan:

1. Hire 10 newbies who have to use their own little money, let's say $5K. less is OK too.

2. Teach them a bullshit swing system with futures. Why futures? Because that is one fast way to lose it all quick. Options are too complicated for the average person. Why swing trade? Because you don't want them to scalp, remember you are taking the oposite side let's say 3 times. That is hard with a scalping system.
So theach them a wide stop loss swing system.

3. On average I would say 1 will make money, 2-3 tread water, the rest will get whipped out. So your company made 6x3-3-little commission=5losers x 3 multiplier x $5k >>>75 K probably in the first month.

4. To those who lost it all, offer the company's money and say, that it wasn't their fault, and you give them another chance, and if they become profitable they can pay it back. You are basicly hedging yourself, because if they keep losing, you still make twice as much and if they win, they have to pay you back.

5. To the 1 winner, you can say, he should reinvest his winnings. There is a good chance that more money will screw him up, thus becoming a loser.

6. Put a new add in the paper that you are hiring and repeat the process....

If it really works out the way I described, you can use a bigger multiplier, like 5 or 10. Again, you are basicly like a casino, playing the numbers game, chances are that there will be no group where more than 50% is going to be the winner. Even if it is 4 winners to 6 losers, you are ahead....

 

[brettman9]

Quote from jem:

The opposite of a bad traders is probably still a bad trader.

Interesting thoughts. In an unrelated note, I've got a possible job offering for you if you're interested.

 

[RussellDaytrade]

This will indeed work. It will not only work, it will work effectively, and can even be improved / enhanced through optimization and, what I refer to 'intelligent optimization'.

I have developed my own version of this concept, and believe it holds great profit potential. While it differs from the OP design, the overall concept is similar. And certainly it can (amd should) be implemented at a lower threshold than 100 traders.

As for artificially / technology driven systems that in fact replace / replicate traders, in place of actual traders, that is an entirely different discussion, and may have merit in its own right that holds potential.


It does make one wonder though, if the very nature of the hedge-fund model may in itself have at its root and core, the realization of hedge-fund managers that even they have to hedge their own positions, in the acknowlegement they are most likely to create losses otherwise, ie, more likely to wrong than right, on an on-going and consistent basis.

Quote from brettman9:

You start a hedge fund. You hire 100 novice traders. You match their capital 3:1. You set up a trading floor with individual trading stations.

BUT - and here's the kicker - you have a trading interface with the buttons switched. Everytime they think they are buying, they're actually selling. They see their p/l * -1 (i.e. when they think they're having a bad morning, and they start to trade emotionally and lever up to get it back, they're actually having a hugely good day).

When they think they have lost all their original money, you let them go and hire replacements, telling them that you absolve them of their losses and refund them their original money (which, of course, is a small portion of the huge gains they have made for you).

The details of exactly how to set it up are unimportant...the key point remains: If you believe that trading is hard, on average, and the odds are that most traders will fail, at least at first, then you also believe, ipso facto, that the inverse of those statements is also just as true for an inverted trading interface (ie, trading is easy, on average, and the odds are that most traders will succeed, at least at first). Their decision-making would be a consistent money machine.

I think this would actually work in practice (except for possible legal issues).

I also believe that it is proof, for the trading nihilists who seem to show up on this website from time to time, that consistently winning trading is possible.

 

[jem]

Quote from brettman9:

Interesting thoughts. In an unrelated note, I've got a possible job offering for you if you're interested.

I am doing pretty well right now, but any offer on a trading board could be very interesting.

what type of job?

 

[Random.Capital]

Quote from brettman9:

If what novice traders believe will be a good idea, by and large, leads to losses, the inverse will have to be true if the buttons are mis-labeled.

There is a path-dependency not being accounted for. Maybe an actual example would be illustrative...

Stock A trading at $100.

Bad Trader -> goes long, profit target is $10, trailing stop of -$3. Your inverse trader therefore goes short, profit target is -$10, same trailing stop.

Actual stock movement -> goes +$3, then retreats back to where it started from.

Bad trader has lost a little money (slippage + commissions)

Your inverse trader has lost a lot more money (your -$3 stop got triggered).

Hope that helps illustrate the problem. To invert properly, it's not just entries, or even just entries and exits - you have to invert the entire risk profile. So if you're fading a dude with tight stops, you need to have no stops at all - ie, accept "infinite" risk - to actually invert what he's doing.

And that means you'll have to deleverage, a lot, which means you've cut your own profit potential, a lot.

 

[southbeach4me]

Where do you all get these retarded ideas like inverse trading for novice traders ? .... The back of a cereal box?

This site really is going to the shitter

 

[cybat]

maybe instead of switched buttons you can use inverse ETFs,so if lame trader buys FAZ you buy FAS and you both are long...

 

[TraderZones]

Quote from southbeach4me:

Where do you all get these retarded ideas like inverse trading for novice traders ? .... The back of a cereal box?

PRECISELY what I was going to say. This idea reflects the OP as a newbie. Seems like many newbies come up with the "Gee, if I just trade the opposite of a losing system, would I make money?"

NO! Slippage, bid/ask spread, errors, commissions, trading/data fees, + business costs, etc. make this negative slippage. Poor money/trade management add to this.

At best, you get a longterm random results before costs.

 

[andrewbee]

There is some merit to the idea. There was a reality show on last year (I think) of a bunch of newbie traders in London, who were taught basic TA etc. and then set loose in the markets. They were doing short-term swing trades, i.e. holding positions for a few days. Equities only.

Most lost money, most of the time. So, someone else in the market was pocketing that money. Mathematically modeling the newbie mind, or using actual newbies, and inverting them, might produce results.

 

[ElCubano]

Quote from brettman9:

You start a hedge fund. You hire 100 novice traders. You match their capital 3:1. You set up a trading floor with individual trading stations.

BUT - and here's the kicker - you have a trading interface with the buttons switched. Everytime they think they are buying, they're actually selling. They see their p/l * -1 (i.e. when they think they're having a bad morning, and they start to trade emotionally and lever up to get it back, they're actually having a hugely good day).

When they think they have lost all their original money, you let them go and hire replacements, telling them that you absolve them of their losses and refund them their original money (which, of course, is a small portion of the huge gains they have made for you).

The details of exactly how to set it up are unimportant...the key point remains: If you believe that trading is hard, on average, and the odds are that most traders will fail, at least at first, then you also believe, ipso facto, that the inverse of those statements is also just as true for an inverted trading interface (ie, trading is easy, on average, and the odds are that most traders will succeed, at least at first). Their decision-making would be a consistent money machine.

I think this would actually work in practice (except for possible legal issues).

I also believe that it is proof, for the trading nihilists who seem to show up on this website from time to time, that consistently winning trading is possible.

great idea on paper, I'd like to see how it would play out in reality.

someone averaging down on what he thinks is a losing trade instead of trying to get out too early... now imagine everyone doing the same... cachingo.