I believe the current SOTA is to submit trades in the order of 10ms after the document is available online. In that time they downloaded the file, ran sentiment analysis on it and ran the numbers, decided which way to go and sent the trades to the market.

It's worth every penny to be first, but unless you have a lot of pennies, you won't be first.

Despite being a Boglehead (total-market index investor), who thinks that's the best tablescraps I can get, when I can't be in the club of the people who're making the real money from the systems...

I have idly wondered whether there's an viable opportunity to exploit retail investors who're being manipulated/misled (by, e.g., MSM financial 'news', stock-picker personalities, bloggers, WSB, etc.).

Then I realize I was considering actively profiting off the misery of other retail investors, and decide to just stick to my index funds.

> I have idly wondered whether there's an viable opportunity to exploit retail investors who're being manipulated/misled (by, e.g., MSM financial 'news', stock-picker personalities, bloggers, WSB, etc.).

Generally, this idea doesn't work because "manipulated"/misled retail investors will still be right 50% of the time. Being bad at trading gets you zero EV, not negative.

But if you look closely, those retail investors pay fees and spread, and if you find a way to collect those, you have a strategy. Usually, spread protects the security seller against adverse selection and market movements. But if you sell to someone who certainly doesn't know more than you do, you can just collect the spread without taking any of the risks. This is why payment-for-order-flow is viable, and why retail traders get lower fees on platforms like Robinhood than professional traders on platforms like IBKR Pro.

Whatever you do, you're probably not going to find a better strategy than the multi-billion dollar hedge funds trying to do the exact same thing but with a team of 200, and you'd just end up as one of those "retail investors" you'd try to exploit.

> Being bad at trading gets you zero EV, not negative.

I’d have to think a bit more to be sure, but my first instinct is that “bad at trading” would be negative EV given the presence of firms who are good at it. If you enter a trade in the “wrong direction”, you’re much more likely to get a fill than if you are in the right direction. Other errors include letting losers run (hoping to “get out even”) and cutting winners short (banking a minuscule win when a large win was coming).

I feel pretty sure that overall poor traders lose money rather than break even.

Even if we stipulate that “bad” trading is limited to directional bets on the price movement of a security, and as such is definitionally a 50/50 proposition (at least in the very short term - in the long run, every issuer is going to zero), I still think that bad trading has to be negative EV. In the olden days (of five years ago), those bad traders paid transaction expenses. Now they’re just getting adversely selected against.

And there are all kinds of objectively worse trades than 50/50 price bets - leveraged ETFs, short-dated options, buying stock issuances as a company free falls into bankruptcy - these are definitely not positive EV trades.

> If you enter a trade in the “wrong direction”, you’re much more likely to get a fill than if you are in the right direction.

Takers (ie. most retail investors) always fill. Makers create an order book, defining a buy (say $101) and a sell price (say $99), along with a spread in-between ($101-$99 = $2). If you buy a stock at a price the maker offered, you will be guaranteed to get it; the maker has no say in that transaction (they can't reject it anymore after the taker accepted).

If you do the math carefully, you'll see that both strategies "letting losers run" and "cutting winners short" fascinatingly have a neutral EV (ignoring fees and spread). You just take a lot of unnecessary risk/variance, but it all averages to zero. (Even the strategy "I just go all-in until I am bankrupt" has a zero EV after any finite number of iterations, because the exponentially unlikely chance of you winning every single time comes with exponential payoff.)

The fundamental principle behind this is that takers buy at market prices (ignoring fees and spread), and that those market prices are in an equilibrium. If it were possible to easily lose money by buying at market prices, then billion-dollar hedge funds would've already shifted the market prices by simply doing the reverse, before the retail trader would have any chance to trade on it.

I'm a retail investor. I think I've entered fewer than 2% of my orders as market orders. I rarely want to take a price and give up the full spread. I doubt I'm alone.

If you're a maker (which is not necessarily the case with limit orders), then there is a slight potential for adverse selection, but that's exactly what the spread compensates you for. If you don't want that, I'd recommend sticking to being a taker and paying the spread, for example using market or IOC limit orders.

The Inverse Cramer ETF (SJIM) would be right up your alley.

If there's a viable opportunity, it's already being done.

Nasdaq closing auction ends at 4pm. Reports come out later. Participants trading on 8-K cannot trade the news immediately. Orders can be executed only on Monday during opening auction. Also, you assume their trades are enough to move the market and neutralize the opportunity, which may not be the case. Perhaps they can trade off market. I’m just saying that it may not be a done deal as you describe it, but I may be missing some aspects.

Anything of relevance has significant AH volume. You’re too late by Monday morning.

This is a very retail oriented view of the world. For the big players it’s trivial to move stock any time of day, there are various methods, they aren’t sitting around waiting for financial markets to open.

Would you care to give some examples? Anything after hours must be OTC, but traders won’t be on the floor on Saturday and Sunday. I know. I was there. So, who’s going to trade during the weekend? Trades also have to be reported within a certain time. I’m not sure about weekend reporting. It’s a genuine question. Your comments seems more a hearsay than actual experience.