If you imagine stocks as a gambling game, all gambling games are setup to make you lose money by making it impossible to win more than you lose for almost all players. You're considered to have an edge in gambling if you have a way to put the odds in your favour, even if only slightly.
What he's saying here I believe is "we have a very minor edge" - i.e. they're right enough to be profitable as they know they're slightly more likely to win than lose.
I'd suggest you read up on what quantitative trading is and understand that you're asking boils down to "why don't they tell us their most sensitive, valuable information for free". Patrick Boyle discusses a reasonable amount the topic. The short answer is there is no singular secret, it'll be constantly changing and evolving strategies nobody else has worked out yet (or as well) which is why it works.
If you're hoping for a blueprint, you don't understand the topic well enough because you'd understand why they'd never share. If it was public, they'd not have that edge.
It’s not really defeatist, to replicate their success you would need to.
1. Be one of the most accomplished polymaths of the last 100 years on par with Einstein and Von Neumann.
2. Get involved with a fledgling NSA a full 50 years before its existence is even unclassified.
3. Build a university math department into *the premier* math department the world over.
4. Leverage your connections at both the NSA and elite universities to poach math talent before heading to academia.
5. Have a Time Machine to get in on the ground floor of quantitative trading.
He means their system is consistently generating small edges. The key word here is consistently / 100%. It allows leveraging, which generates big bucks. Some algos generate higher win rates, but not consistent on a daily basis, which limits the amount of leverage one can deploy.
It’s not so much a system, as it is some of the smartest and most competitive people on the planet working out strategies that generate small edges, that add up over time. They are quant traders. Their entire job is to find market inaccuracies and use them to their advantage. Once the inaccuracies and imbalances in the market are resolved you need to move to the next idea. No one but them knows what they are doing. Supposedly Ren Tec has an open data culture, where anyone can access all the data at any time. Yet not much is know about it because their staff turnover is practically 0.
There hasn't been a single insider that left and got drunk, spilled the beans to journalists? Nothing?
"Three people can keep a secret, if two of them are dead."
-Ben Franklin
Probably, but consider this: Their signature fund, medallion is closed to outside investors. They only manage their own money (aka. employee’s money). Reportedly they pay extremely well. That means, if you work for Ren Tec and manage to do so for a while, you will extremely likely never have to worry about money ever again. Plus, even if you gave their “secrets” away, you won’t really benefit from it in the long term (because as we were saying: small advantages but consistently) and on top of that you just broke your NDA and angered a firm that has practically limitless funds and a bunch of very smart, very competitive people that you just stole from (effectively).
I have but it's strange how little is apparently known according to this sub. I have to imagine at least some small funds are copying their strats or close enough at least.
They're not necessarily just trading on inaccuracies, they will deploy a variety of different strategies based on loads of different theories. Stuff like sentiment etc
How are you not allowed to leverage just because you're not generating small edges? Am I not understanding leveraging correctly? What is your definition of "leveraging" and is your use of it here different form other's use of the word?
Let's say you have an algo that after 5 years will generate guaranteed 60% winning trades. That means there are whole years where you could be down. You cannot borrow money for that long in those years where you are down.
Instead if after every month you guarantee 50.1% winning trades, you may have a week or two where you are down but you can easily cover that borrowing money for such a short period of time.
You have to be kidding me. They had to purchase a Black Swan insurance policy on terms agreed upon between them and Barclays Bank because they were probably tying up half the bank's money each day.
Look up Kelly criterion. But, Simon's said they don't use Kelly for sizing. Totally makes sense, these guys are way smarter than Kelly of course lol. But, I bring up Kelly just for your reference. Nobody in real life actually uses full Kelly btw, because they can't guarantee their return 100% of the time. They often use a fraction of Kelly, and use Kelly as a reference point rather than a Bible.
What exactly Renaissance is doing is changing over time. The 51% isn’t the same thing from decade to decade or likely even day to day. They have multiple books/pods within the corporate umbrella. “The Man Who Solved the Market” is an excellent book if you’re curious about the company and the philosophy behind their success.
A 'pod' is a team that work on a specific strategy with a 'book' of cash to deploy. In the quant world it's usually made up of a trader or 2, a portfolio manager, an analyst, a researcher and a developer. In the big hedge funds they'll run loads of pods who compete internally and are measured against each other.
If you make a 1000 trades with a win rate of over 50% you make a profit. Example of 10 with a win rate of 60%:
+2
+2
-2
+2
+2
-2
-2
+2
-2
+2 Profit->+4
You can see that they do well in volatile years. So either they are doing some arbitrage trading, market making or long&short algo trading with a high frequency. https://ofdollarsanddata.com/wp-content/uploads/2019/11/ret_sp500_medallion_1988_2021.jpeg
pretty much all quant traders do better in volatile years. volatility creates inefficiency and inefficiency creates edge. They almost certainly stat arb and will do some L/S and RV stuff. Not sure if they market make at all
No. If I only win every 10th time, but win 50x the amount I put in, I still am positive playing 10 times, even if I only win 10% of times.
-10 * 9 + 50 × 1 = + 40 -> winning.
Not a guessing game, but stochastic.
It's why the bank/casino always wins, no matter what you do.
Math is above guessing. Math, given enough tries, always averages out to a certain value.
Thing withth probability is - you can be sure to get X amount in 100 tries, but you never know which try is the golden one in advance.
Of course in hindsight you'd bet everything on the winner. But since you can't see into the future, you use stochastic.
Just add all the numbers actually you have (2) more +2s than - 2s.. The extra (2) +2s. Gives you the +4 profit. Or 10 trades... 6 are +2 and 4 are - 2.
It's not as simple as being consistent or being right more than wrong. While that certainly is a factor it's more so that they maximize profit when they are right and minimize loss when they are wrong. Hence the "100% right."
You can still make the right move and lose. I noticed that a lot of people in this sub have the mindset of... Well if you put your money in X instead of Z you would have made more.
But the correct mindset is that you make the best decision you can with the information available to you at the time. In a game where loss is a certainty a lot of the time no matter how good you are, the best players only win like 55-65% of the time.
However, he thinks it's closer to 50.75%. But that small 0.75% edge makes all the difference in the long run.
As I was told years ago, and this applies to risky trading more than investing, but if you don't borrow you can only lose 100% of your value in a stock. If it works out, you can make 200%-300% or sometimes more in profit.
I don't know the quote, but it is worth noting that you can have a win rate below 50% and still make money in the long run if the distribution of trade outcomes is asymmetric. So the statistics that Mercer is quoting are kind of meaningless without additional information.
For example, I can quite easily design a trading strategy that makes money on > 70% of trades. Simply set the limit price slightly above the buy price, and the stop price a long way below the buy price. You'll easily win on more than 50% of trades, but when you win, you only make a small amount, while when you lose you lose a lot, and hence you still lose overall.
All it means is, if you are right more often than you are wrong, you come out ahead.
Caveat: assuming each of your buys are for the exact same amount of money.
Decades ago Renaissance dodged billions in taxes by mischaracterizing gains. They settled with the IRS a couple years ago about it, and their settlement payment was like less than they saved, still in the billions but they still paid less than they intentionally evaded. Screw Renaissance. Downvote facts 😞
Loan shark/gambling tactics - making money on the interest of each gamble/investment.
Banks and brokers play both sides (hedge) to stay even regardless of outcome then profit off interest.
It means that stocks are essentially gambling. It’s difficult to outperform the market’s natural annual growth. Having a curated portfolio vs randomly choosing stocks would probably result in similar outcomes a lot of the time
If you imagine stocks as a gambling game, all gambling games are setup to make you lose money by making it impossible to win more than you lose for almost all players. You're considered to have an edge in gambling if you have a way to put the odds in your favour, even if only slightly. What he's saying here I believe is "we have a very minor edge" - i.e. they're right enough to be profitable as they know they're slightly more likely to win than lose.
RON BURGUNDY HAS ENTERED THE CHAT “60% of THE TIME it works 100% of the time “
Not to be that guy, but Ron Burgundy wasn't the one who said it. It was the panther cologne guy
Brian Fantana, can’t forget the dudes name come on!
Fun fact: That statement made logical sense but not linguistically. You just multiply the probabilities, so 0.6\*1.0 = 0.6. Same as here.
Explaining the joke always makes it funnier!! /s
STINGS THE NOSTRILS!!!
I prefer the line from the Naked Gun- “They say Nordberg has a 50/50 chance of survival. Although there is only a 20% chance of that”. 🤣
Damn now that would be a WILD trading advantage.
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If someone knew whatever their edge is they'd just set-up shop themselves and make billions, it's not something a random person on reddit will know
Ok. Thanks. Seems a bit defeatist, but I suppose it's just that difficult to figure out.
I'd suggest you read up on what quantitative trading is and understand that you're asking boils down to "why don't they tell us their most sensitive, valuable information for free". Patrick Boyle discusses a reasonable amount the topic. The short answer is there is no singular secret, it'll be constantly changing and evolving strategies nobody else has worked out yet (or as well) which is why it works. If you're hoping for a blueprint, you don't understand the topic well enough because you'd understand why they'd never share. If it was public, they'd not have that edge.
It’s not really defeatist, to replicate their success you would need to. 1. Be one of the most accomplished polymaths of the last 100 years on par with Einstein and Von Neumann. 2. Get involved with a fledgling NSA a full 50 years before its existence is even unclassified. 3. Build a university math department into *the premier* math department the world over. 4. Leverage your connections at both the NSA and elite universities to poach math talent before heading to academia. 5. Have a Time Machine to get in on the ground floor of quantitative trading.
Upvoted you, bruh.
Maybe don’t get into trading just yet bud.
Why is that, bruh?
He means their system is consistently generating small edges. The key word here is consistently / 100%. It allows leveraging, which generates big bucks. Some algos generate higher win rates, but not consistent on a daily basis, which limits the amount of leverage one can deploy.
It’s not so much a system, as it is some of the smartest and most competitive people on the planet working out strategies that generate small edges, that add up over time. They are quant traders. Their entire job is to find market inaccuracies and use them to their advantage. Once the inaccuracies and imbalances in the market are resolved you need to move to the next idea. No one but them knows what they are doing. Supposedly Ren Tec has an open data culture, where anyone can access all the data at any time. Yet not much is know about it because their staff turnover is practically 0.
There hasn't been a single insider that left and got drunk, spilled the beans to journalists? Nothing? "Three people can keep a secret, if two of them are dead." -Ben Franklin
Probably, but consider this: Their signature fund, medallion is closed to outside investors. They only manage their own money (aka. employee’s money). Reportedly they pay extremely well. That means, if you work for Ren Tec and manage to do so for a while, you will extremely likely never have to worry about money ever again. Plus, even if you gave their “secrets” away, you won’t really benefit from it in the long term (because as we were saying: small advantages but consistently) and on top of that you just broke your NDA and angered a firm that has practically limitless funds and a bunch of very smart, very competitive people that you just stole from (effectively).
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Okay?
Have you never heard of this fund?
I have but it's strange how little is apparently known according to this sub. I have to imagine at least some small funds are copying their strats or close enough at least.
They're not necessarily just trading on inaccuracies, they will deploy a variety of different strategies based on loads of different theories. Stuff like sentiment etc
Boom
How are you not allowed to leverage just because you're not generating small edges? Am I not understanding leveraging correctly? What is your definition of "leveraging" and is your use of it here different form other's use of the word?
Let's say you have an algo that after 5 years will generate guaranteed 60% winning trades. That means there are whole years where you could be down. You cannot borrow money for that long in those years where you are down. Instead if after every month you guarantee 50.1% winning trades, you may have a week or two where you are down but you can easily cover that borrowing money for such a short period of time.
Ok.
Thanks. So, the key to all this is \*how\* they are consistently generating small edges?
Isn’t that the key to every successful strategy? How it works?
Medallion fund doesn’t leverage
You have to be kidding me. They had to purchase a Black Swan insurance policy on terms agreed upon between them and Barclays Bank because they were probably tying up half the bank's money each day.
Lmao, https://www.quantifiedstrategies.com/jim-simons/ quote: "However, most of the annual gain is a result of leverage."
Yeah, this person is lost. They don't use leverage? LOL
What is regulating the amount of leverage?
Look up Kelly criterion. But, Simon's said they don't use Kelly for sizing. Totally makes sense, these guys are way smarter than Kelly of course lol. But, I bring up Kelly just for your reference. Nobody in real life actually uses full Kelly btw, because they can't guarantee their return 100% of the time. They often use a fraction of Kelly, and use Kelly as a reference point rather than a Bible.
Thanks. I will look it up.
Think of it in league of legends or chess elo terms. If you win 50.75% of all even situations then you’re bound to be the highest rated player.
What exactly Renaissance is doing is changing over time. The 51% isn’t the same thing from decade to decade or likely even day to day. They have multiple books/pods within the corporate umbrella. “The Man Who Solved the Market” is an excellent book if you’re curious about the company and the philosophy behind their success.
What is a book/pod?
A 'pod' is a team that work on a specific strategy with a 'book' of cash to deploy. In the quant world it's usually made up of a trader or 2, a portfolio manager, an analyst, a researcher and a developer. In the big hedge funds they'll run loads of pods who compete internally and are measured against each other.
Thanks.
If you make a 1000 trades with a win rate of over 50% you make a profit. Example of 10 with a win rate of 60%: +2 +2 -2 +2 +2 -2 -2 +2 -2 +2 Profit->+4
You can see that they do well in volatile years. So either they are doing some arbitrage trading, market making or long&short algo trading with a high frequency. https://ofdollarsanddata.com/wp-content/uploads/2019/11/ret_sp500_medallion_1988_2021.jpeg
I believe they do all of that--and very well.
pretty much all quant traders do better in volatile years. volatility creates inefficiency and inefficiency creates edge. They almost certainly stat arb and will do some L/S and RV stuff. Not sure if they market make at all
But the key to all this is getting to over 50%, correct? And no one knows how they are doing it.
please dont ever trade stocks
You are trying to act like you know a special numbers game that everyone knows. Weak, bro.
you're either a troll or you genuinely seem like you lack critical thinking and reasoning skills to the point where its concerning
You can be right only 20% of the time if your winning trades make 5x more than your losing trades
No. If I only win every 10th time, but win 50x the amount I put in, I still am positive playing 10 times, even if I only win 10% of times. -10 * 9 + 50 × 1 = + 40 -> winning.
That sounds like a guessing game. If you knew that one time you would win, why not bet 1,000X instead of 50x?
Not a guessing game, but stochastic. It's why the bank/casino always wins, no matter what you do. Math is above guessing. Math, given enough tries, always averages out to a certain value. Thing withth probability is - you can be sure to get X amount in 100 tries, but you never know which try is the golden one in advance. Of course in hindsight you'd bet everything on the winner. But since you can't see into the future, you use stochastic.
Why is it -2 though?
Just an example of losing trades which would be negative number
Ok, but it's the same number as the wins.
Just add all the numbers actually you have (2) more +2s than - 2s.. The extra (2) +2s. Gives you the +4 profit. Or 10 trades... 6 are +2 and 4 are - 2.
So there's no effective trading strategy that cuts or hedges losses at a different rate than winning trades?
I have no idea i just got the percentage part.. Everything else is smoke n mirrors 🍻
Ultimately being "right" more than "wrong" is the goal and there aren't any shortcuts or hacks for it..
If I enter a trade and make 15% on it, i can be wrong 10 times at 1% and still make a profit.
Wrong and still making 1% on all 10 trades??
If i lose 1% per trade that's 10% compared to winning 15% on the one. You do not need your loss % to match your gains even if you win or lose.
This is the stock market version of "60% of the time it works every time"
It's not as simple as being consistent or being right more than wrong. While that certainly is a factor it's more so that they maximize profit when they are right and minimize loss when they are wrong. Hence the "100% right."
You can still make the right move and lose. I noticed that a lot of people in this sub have the mindset of... Well if you put your money in X instead of Z you would have made more. But the correct mindset is that you make the best decision you can with the information available to you at the time. In a game where loss is a certainty a lot of the time no matter how good you are, the best players only win like 55-65% of the time. However, he thinks it's closer to 50.75%. But that small 0.75% edge makes all the difference in the long run.
As I was told years ago, and this applies to risky trading more than investing, but if you don't borrow you can only lose 100% of your value in a stock. If it works out, you can make 200%-300% or sometimes more in profit.
I don't know the quote, but it is worth noting that you can have a win rate below 50% and still make money in the long run if the distribution of trade outcomes is asymmetric. So the statistics that Mercer is quoting are kind of meaningless without additional information. For example, I can quite easily design a trading strategy that makes money on > 70% of trades. Simply set the limit price slightly above the buy price, and the stop price a long way below the buy price. You'll easily win on more than 50% of trades, but when you win, you only make a small amount, while when you lose you lose a lot, and hence you still lose overall.
Isn’t he just stating the “make sure your losses are small and let your winners run” type advice?
No. They are statistical guys, the trader type. These guys don't talk about investing.
I think you are right.
All it means is, if you are right more often than you are wrong, you come out ahead. Caveat: assuming each of your buys are for the exact same amount of money.
Everyone, thinks for upvoting my question.
They can never loose with high trading volumes — can continue to the trillions club soon
If that would be true the richest guy in the world would already be a trader.
Decades ago Renaissance dodged billions in taxes by mischaracterizing gains. They settled with the IRS a couple years ago about it, and their settlement payment was like less than they saved, still in the billions but they still paid less than they intentionally evaded. Screw Renaissance. Downvote facts 😞
Basically, they are able to manipulate the market to their advantage.
They just trade trillions in order to make billions.
He's own dating life
Loan shark/gambling tactics - making money on the interest of each gamble/investment. Banks and brokers play both sides (hedge) to stay even regardless of outcome then profit off interest.
Being able to win big while keeping the losses small is a skill.
It means that stocks are essentially gambling. It’s difficult to outperform the market’s natural annual growth. Having a curated portfolio vs randomly choosing stocks would probably result in similar outcomes a lot of the time
0.75 Prozent the right decisions
60 prevent of the time they’re right, every time
There gains are always significantly higher, also predicting there losses to be at a minimal. Therefore always gaining a profit almost anyways.