Quants Are Making It Impossible For The Individual Trader

[Iconoclast]

A very interesting video interview. A number of questions raised in just the interview, including whether computerized trading has been a benefit to the individual trader. (I think not, it has just provided more investor fodder for the Boyz.)

"The author of the new book, The Quants, talks on Yahoo Finance about the quantitative machine-based trading that has fully taken over Wall Street.

Scott Patterson says that there has been a huge rise in the number of quant traders on Wall Street and they make it really hard for the individual to compete on a level playing field.

"[The individual trader] has no idea the forces that are arrayed against him," says Patterson.

As he notes, Ren-Tec alone has 90 Ph.D's figuring out market patterns. Good luck going against them."

http://www.businessinsider.com/quants-t ... eet-2010-2

I posted some time ago about Cyborg Trading now offering high frequency trading to individual investors, another investment complication.

Then again, maybe these guys who keep blowing things up, can be beaten.
Meanwhile, of course, it seems the Boyz and their Quants are destroying both the Casino and its customers.

[newguy]

I found it hard to understand the logic in the interview. Very mixed and contradictory presentation of what goes on. He almost implies that people should use their 'guts' instead of quantitative analysis. Anyway, I don't think the number or brains of people trying to figure out the market really matters. It's always been controlled by emotion more than anything and that's a really simple thing to understand. The more complicated you try to make it, the less robust your theory becomes. He even states the 90 phd's are doing data mining. Why? Do they want to model the past perfectly?

newguy

[randomwalker]

I found it hard to understand the logic in the interview. Very mixed and contradictory presentation of what goes on. He almost implies that people should use their 'guts' instead of quantitative analysis. Anyway, I don't think the number or brains of people trying to figure out the market really matters. It's always been controlled by emotion more than anything and that's a really simple thing to understand. The more complicated you try to make it, the less robust your theory becomes. He even states the 90 phd's are doing data mining. Why? Do they want to model the past perfectly?

newguy

and if emotion is quantifiable into a trading algorithms...

[newguy]

and if emotion is quantifiable into a trading algorithms...

It is. That's pretty much what technical analysis is. I'm just saying you shouldn't get too fancy with it, and I doubt 90 young phd's could trade better than 1 old guy with some experience. We know in theory Bogle will beat the sum of the trading systems.

newguy

[Peculiar_Investor]

How many young PhDs and for that matter, Nobel prize winners, were at Long Term Capital Management? We know how that turned out.

[ghariton]

Quantitative analysis, eh?

There sometimes seems to be no limit to how far people will go to make financial data scream. You can find strong statistics, and useless investment signals from butter production in Bangladesh, the US population of 9 year old kids, and now, in a dramatic breakthrough, relating average penis size to GDP growth, a key measure of stock market returns around the world.

Fill yer boots.

George

[gyrfalcon]

It may well be that quants are making it [far more difficult] for the individual trader. I also believe that true HFT is morally wrong as it is nothing more than a parasitic skimming operation. I may also argue that the volatility in the market today, caused by HFT, more traditional traders and some hedge funds who have no true investment role, is slowly killing participation by the retail investor. They are being "scared off".

But a more interesting question, really, is "Are Quants Making It Impossible for the Individual Investor ?"

I'll argue that they are NOT. If I am a true INVESTOR, it makes virtually no difference whatsoever if I pay 1/2 cent more or less for my Royal Bank, which I may plan to hold for 20-30 years.

In this sense, HFT truly are simply parasites, and nothing more. And fast / short-term traders are not much different. (Sorry about that). gyr.

[ghariton]

How about the argument that frequent traders, including HFTs, provide additional liquidity and so benefit the rest of us?

George

[gyrfalcon]

How about the argument that frequent traders, including HFTs, provide additional liquidity and so benefit the rest of us?

George

Liquidity, clearly. Benefits, very dubious. There has always been a price that can be agreed to. Don't try to tell me they provide liquidity for small caps. I won't buy that. And where were they during the Flash Crash, for example, when they may have actually been of use ? Shut their trading systems down, that's where they were. The liquidity benefits the exchanges and fellow HFT and not-so-HFT traders who are just skimming the business, as I see it.

"Liquidity" is one of those sad excuses that folks trot out to defend a situation that cannot be defended. It sounds good. It's pathetic.

[gyrfalcon]

"Howard Wetston, the head of the Ontario Securities Commission, believes that markets are fundamentally for long-term investors. That’s not a good sign if you are a high-frequency trader wondering what policy makers are going to do to your strategy of flipping Canadian stocks.

Mr. Wetston, who has led the country’s most powerful market watchdog since 2010, has reached no final conclusion on the effects on markets of high-frequency trading, one of the hottest topics in financial market regulation. But it is very clear from spending an hour with him in his office, 17 floors above downtown Toronto, that his philosophical starting point is hard to square with the idea of traders using super-powerful computers to churn millions of shares in milliseconds in a bid to capture tiny bits of profit that add up fast."

.........."High-frequency trading is the shortest-term activity of all. HFT encompasses multiple strategies, but generally involves buying and selling shares in fractions of a second to capture small price discrepancies or rebates offered by marketplaces seeking trading volume. By Mr. Wetston’s definition, they are not really “investors” at all – many such trading shops own no shares overnight."

http://www.theglobeandmail.com/globe-in ... le4490639/

Or as a private individual might say, "HFT is a parasitic skimming operation, nothing more and nothing less." It's hard to say it that bluntly when you are in a position of authority. Any intelligent person can see it for what it is.