I agree that institutional investors have a group think that leads to poor performance and that there are situations too small for large investors to bother with. But the existance of opportunity doesn't mean an internet poker player with $100,000 is going to read a few books and generate excess returns, especially if he atempts it in day trading, an area where studies have shown 90% fail.

i've worked for a top 3 hedge fund in the world at the time (last year) and until they closed the alpha fund, it was opened to whoever wanted to throw money at it. it was all institutional money and 1 uber rich dude ($100mil minimum investment at 2/20).

further, not all hedge funds are active. this fund also ran a leveraged passive strategy that hit whtever risk/return you wanted. it had a SR of 0.70 and maintained that for over 15 years. this strategy requires tons of assets under management so the minimum entry was 50mil at 50bps annual fee.

so overall, the "best" legit hedge funds aren't just "invitation only" per se. they accept as much money as possible and then simply close when they get too big for their strategy (or close to it).

it of course makes sense to make money for strangers!! it costs virtually NO extra money to manage additional resources (upt ot he point of decreasing marginal ability to do so), and the manager makes the guaranteed 2 off the asset base. so as long as the additional revenue from the 2 does not hamper the ability to generate returns (and thus risk the overall fund revenue on the 20), the manager should continue to accept all money...

Barron

The difference between trading 100k and trading <50mm is marginal at best in terms of volume movement. If you are generating 40% a year and can document it you are an idiot if you are still trading your half mil or whatever.

Yes there are tons of hedge funds that suck, and yes some people suffer from group think. But to think that the smartest people on the street are sitting in room daytrading 100k-1mil is ridiculous.

actually i heard its around 3-5%

1) lol, I'm not sure what to say. There's a huge difference between small position (like 10 contracts) and dealing with 1000 contracts, or more. Scalability is a nice curve, there's no magic mark. It also comes into play in different market types.

2) Why do people consistently strawman on forums?

Art,

LDO. Strawmen are a really simple error for the dumb. They're open/shut. You can't argue against a straw man and it frequently gives great quotes when you dissect their strawman, since they'll mix the two arguments and no one has a ****ing clue what is going on. I prefer to just insult people and then look in the mirror and say "You're the best Thremp." Its worked so far but YMMV.

lol so true...sometimes when you feel like Kobe playing in the WNBA, its time to change venues

There is a huge difference in investment opportunities for a $500m fund vs a $2b fund. There is sig less difference for a $2b vs a $3.5b fund. And even less for $3.5b vs $5b.

Same argument with slippage. If taking your fund from $1b to $2b will cost the fund 3% / year in slippage and increase the odds of underperforming the benchmarks from 30% to 60% and thereby increase the odds that you lose 30% of capital next year, well you can see that more isnt always better.

And most PM/analysts have a sig % of their net worth invested in their own funds. So its not really as simple as put a bunch of risky bets and hope they pay off.

No.

Join a prop trading firm. You can even trade remotely. You can deposit around $20k and get as much leverage as you need. Some require series 7, some don't. You'll get better deal with series 7.

Or just go retail with 4:1 margin.

Of course, you need an edge...

Most of what I buy is illiquid enough that I affect the daily price, and while I have much more than a 100k I have far less than $50M. I'm not a day trader but I think it's applicable. It depends on your strategy, my guess is the best strategies for a portfolio size often point to relatively illiquid ideas. The more liquidity, the more competitors trading your ideas.

Stephan,

I never read the study, my comment was from memory. This study

http://www.nasaa.org/content/Files/D...5FAnalysis.pdf

sounds like the study but also sounds like my memory was way off. It's 70% losers done during the go-go years of 1997-98. Also it estimates trading costs at 50% per year, so I wonder if commisioons now are low enough to change the ratio of winners to losers. I believe the accounts were from a firm the SEC cracked down on it for accepting clients it shouldn't have. Some of the positions held were multi-day, so it's unclear if the strategies used really encompass "day trading"

http://www.nasaa.org/content/Files/N...g%5FReport.pdf

Has it been proven that there are a non-trivially-small number of people who are able to day trade with a +EV? It's an honest question, not trying to bash the daytraders in this thread, and I have nfi what the answer is.

It's just that from my reading on market efficiency, and the studies of mutual funds and hedge-funds (the former of which in particular virtually never show longterm abnormal profits), it's a little hard to believe that daytrading actually works.

Just the idea of people jumping into daytrading and expecting to make 40% returns really sets off my BS alarm.

On the other hand a market is a market, they all seem to be beatable by at least a few people.

I find it hilarious how every profession thinks academia is full of ****, but people on the outside of a profession take academia as gospel. Business people laugh at academia's ideas. Political science people laugh at academias ideas, etc. But when it comes to finance, outsiders are so taken that the efficient market hypothesis and friends that they believe every word. Its such a compeling argument that seems to make the world a much more controled and ordered place.

The truth is, academics keep this theory alive, because they need their finance formulas and equations to work out. Without the assumption of a perfect market, research hits a wall. The sheer spectrum of variables makes any kind of meaningful research nearly impossible. So, to keep the dream alive, they devise different theories on the market that only holds true in academia wonderland.

And outsiders just take it as the truth, without questioning it. Once you understand the dynamics of a marketplace, its then you can read and apply theories about how to analyse it. Day trading is like being a ticket scalper, you need to read the market and exploit ticket pricing problems. Its not without risk, because unforeseen events can destroy your strategy or make it redundant. This is different to the theory of investing, which people seem to mix up.

By the way, you obviously haven't read much. Funds have been returning obscene amounts of money for a long time. I'm not sure why you picked 40%, but some funds crush it, and so do a lot of day traders.

Or you could take the chip of your shoulder and give me some reliable books or articles to read.

And fwiw I'm pretty sure mutual funds have been all but proven not to beat the market. That leaves hedge funds, which I believe have been shown not to beat the market on average (possibly after adjusting for risk, I can't remember.) A lot of them that seemed to be doing well were just hyperleveraged and eventually had huge losing years.

In any case I know there are at least a few hedge funds that have had great long term records, but my question was not about hedge funds, it was about daytraders.

And finally most of the stuff I have read related to this subject is not academic. There is a huge gap between saying "almost nobody beats the market", which would seem to be the view of such academic entites as Vanguard, and "it is impossible to beat the market" which is a view I specifically did not endorse.

Yeah so anyway back to the original question, has it ever been demonstrated that a non-trivially-small number of people are able to actually beat the market by daytrading?

[And btw that 40% figure came from what I think was your first post in this thread.]

If only there was a forum sticky that could provide some useful starting points!

any academic that isnt completely worthless is fully aware that markets aren't efficient. of the 7 or 8 finance professors i've had over the past year, i'd be surprised if any of them believe in any form of efficient markets.

yeah, they use assumptions when developing models. but they realize those assumptions don't hold in practice. and it doesn't change the fact that those models - or variations of them - are often useful and can be highly profitable.

the notion that academics have a strong belief in efficient markets is just something that donkey investors and traders with no understanding of the academic work make up to convince themselves that everything that comes out of academia is hogwash.

Fair point I guess but that could have been your first response.

I don't think anyone believes in the strong version of the EMT anymore, more the weak version. But it doesn't help the OP to know that some people crush the market, when most hedge funds and mutual funds trail the market. If you are a newb, how do you know that you have the skill to be part of the smaller group that succeeds, and not be part of the larger group that fails?

Having personally witnessed 1000's and 1000's of daytrading accounts come through my doors at my firm for over 20yrs+........I will still stick with the 90% failure rate.(BTW the last 10 years or so was the bulk of the sample size)

However that other 10% make some serious $$$$

GL,
Stephen

Stephen, in your opinion what would be the distribution of profirs of this 10%.

Also, what % of this 10% remains profitable after 5 years, or 10 years etc?

Yeah I don't mean to be an ass, but you do get tired of trying to straighten people out every time. As usual, you'll get people on one side saying "oh yeah its totally beatable for anyone with a brain", and on the other you'll get "LOL everyone loses its all a scam", when the truth is somewhere in the middle and must be found by the individual.

IMO if you have been a profitable daytrader for 3yrs+...........you will ALWAYS be successful at the game.Obviously you will always be adjusting to diff market environments,trading during the proper times,pinpoint BR management,etc.Your P&L will bounce/fluctuate abit ....but beating the market via +EV trades will become second nature.This 10% also understands the most important foundation which is BR management and cutting losses.They take advantage of any potential winning trade or market condition(e.g.the high volatility of the current markets)This will affect his bottom line in a more profitable way and amplify his gains being a net positive trader

However there are many days where the market is virtually UNTRADEABLE.The great trader shuts his computer off and goes about his business.The losing DT'er will force trades (I call them bordem trades) that will often get him into trouble as well as affect his psyche and more importantly his BR

IMO the most profitable time to trade the markets is pre-market thru 10:30 am.Middle of the day entry points(long or short) result in a ton of excess/losing trades as well as unnessessary slippage.I will also trade the close(3:00-4:00) and even trade after hrs during EPS/news releases..

As I have said many times recently.......the last 8-10 months have produced some of the most profitable trading days I have ever witnessed due to the extreme volatilty alone.When a sucessful trader takes advantage of those oppurtunities his bottom line will increase exponentially.The majority of the great/successful traders I know have PUNISHED this market since last summer

GL,
Stephen

FWIW I read your guide and I'm now a believer.