That’s a Good One Mr. PhD

gmanGilbert Mendez's (Gman's) Blogs, Reading the TapeLeave a Comment

It must be good to be a PhD quant for a hedge fund with plenty of money to spare. It is no secret that PhD quants get paid very well for the value they add to a fund. The funny thing is that a vast majority of these geniuses will hardly ever be good active equity traders. Yes thats right, I said it!.

Most quant high volume black boxes rely on complex mathematical algorithms. The reality is that trading does not have to be complicated. The vast majority of the money I make as a trader comes from identifying levels where my risk:reward is very favorable. There are no mathematical formulas, second order differential equations or fuzzy logic involved. The easy money comes from sitting at my seat and waiting for the market to take me to these levels.

As an active trader I try to find opportunities where my risk is 1 unit and my reward at least 5 units. I find it annoying when I am trading a stock and I run into a computer program whose risk:reward parameters is the complete opposite. A clear example of one of these silly programs is buying a new intraday low on a weak stock. I know funds turn on these programs hoping they trap intraday traders hitting the new low. I can roughly calculate that they risk 8-10 units to make 2-4 units; mathematically that makes very little sense and it makes you wonder what these geniuses are thinking – that’s a good one Mr. PhD!!.

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