But before you unleash your automated proprietary model, you should be able to explain why you think you have any edge whatsoever over your far better funded, far more experienced counterparties.
And, no, getting great results from backtesting your model is not evidence of edge in the future against adversaries with access to better data than you have.
RenTech famously tried to understand exact mechanics of their successful models after they (models) proved to be successful. Sometimes they succeeded.
That speaks volumes about your integrity. Good on you!
But it is not true.
The average index fund fails to outperform the S&P.
How many passive index funds are there worldwide? Thousands? How many beat VTI or S&P500? Answer: QQQ and small cap.
> Of those how much can be attributed statistically to skill rather than luck?
If you are picking S&P as your champion, then I am allowed to pick a hedge fund as my champion.
And Citadel outperforms S&P over 20+ year horizon. Citadel 19% vs S&P 10%.
This is a straw man as most people understand investing in indexes as buying a an index that tracks the s&p.
>If you are picking S&P as your champion, then I am allowed to pick a hedge fund as my champion.
You are making a false equivalence. The s&p is a proxy for the us market and therefore is a benchmark. It captures the captures the bets placed by all market participants including citadel.
Citadel does something beyond buying and selling equities to generate that alpha. And it’s likely not just restricted to equities. Nonetheless they are an outlier. Which is the point I was making. Most people won’t do better than the us market in aggregate over a similar stretch of time.
1. SPY shares long/short on margin/leverage
1. SPY options
1. SPX options
1. /ES e-mini futures
1. a blend of all
Does one trump another in popularity?
a lot of technical analysis is done on psychological levels related to (in my opinion) SPY strike prices/SPX strike prices/SPX levels.
Yet, /ES is typically 20 points ahead of SPX. For example, there can be a battle zone of support/resistance at 4900 on SPX, but /ES blew past it a day ago. I wasn't sure if one had more power/prominence than the other.
There is no such thing as support/resistance in reality.
Where would you say 80% of the daily trade volume comes from on average?
The powers to be that I can think of:
institutional investors / fund managers slowly reallocating (selling stuff off, buying stuff) daily
high frequency trading algorithms trading shares back and forth to each other in an artificial way to generate synthetic volume/movement
market makers reacting to option chain volume to remain neutral
"hedge funds" / "quant funds" running their algorithm
what do those algorithms look for at the "minute by minute" scale if not things like support/resistance/patterns/volume?
Your post is completely ridiculous.
Anyone who worked in quantitative trading knows you can consistently outperform the S&P500/VTI/SPY over 20+ year horizons.
Buy and hold passive US equity index funds gives a Sharpe ratio of ~0.7 with annual return of 8-10%. Meanwhile, high frequency trading does upward of Sharpe 10+ with 40-60% annual return, with 10+ year track records, of course.
Hell, even Citadel hedge fund, after their ridiculous 50% performance fee, returned 19% _after fees_ annually to outside passive investors over 20 years. And this is billions of AUM, so the ”quant don’t scale” argument goes out the window.
Why is nobody talking about this? Because the elite politicians and businessmen invest in these very quant funds, and thus suppress any news or regulation. Sucks for middle class professionals with <$5M net worth.