Essential reading for all prospective traders is Taleb's "Fooled by Randomness."
Markets are full of feedback loops, so you can't expect the same results with "paper" backtesting or "paper" forward testing as with real trades, especially in larger amounts.
With such paper testing you can discover and fool yourself with amazing high-probability, high-earning strategies that come with the hidden surprise of low probability catastrophic losses.
For example, many naive gamblers think that a strategy with a 45% chance to win, combined with betting to cover losses, will nearly always succeed because the odds of losing ten times in a row seem low. However, when the inevitable 11th loss occurs, it can be devastating.
I haven't read Taleb's book. But wouldn't the logic you employ apply to any strategy?
eg I could also say that you could fool yourself believing that investing in the S&P 500 index is a strategy with high-probability of performing well, with a hidden surprise of low-prob cat losses.
> But wouldn't the logic you employ apply to any strategy?
You ask a good question.
Consider a game like rock-paper-scissors. The goal is to predict your opponent's move. Among all possible strategies, the random strategy is unique because it can't be predicted. Any other strategy can be anticipated by a smarter opponent. Being random means you can't lose to a smarter opponent.
In trading, buying low and selling high requires prediction. Any strategy that relies on prediction becomes predictable to smarter opponents. Buy-and-hold index investing is the only strategy immune to this exploitation because you're effectively betting on everything. With passive index investing, your investments grow at the rate of business growth, making this strategy special.
I agree that competitors could outsmart you. But that's just like in any other kind of business. Doesn't mean entrepreneurs should give up trying to start a business.
And the probabilities of you succeeding won't be good, of course. But neither are the chances of a startup succeeding good either.
Trading, particularly short-term "buy low, sell high" strategies, differs fundamentally from businesses that create products or deliver services. In trading, profits are often directly linked to the losses of other market participants, making it a zero-sum activity. In other words, for every winner, there must be a corresponding loser on the other side of the trade.
This dynamic is similar to gambling games like Texas Hold'em poker in a casino setting. While skilled players may consistently profit at the expense of less experienced participants, the overall wealth within the game remains constant. No new value is generated; instead, existing wealth is redistributed among the players based on their relative performance and luck. When research time and fees are added trading is largely “negative sum”.
NOTE: Some trading activities, such as market making and arbitrage, provide liquidity and help maintain fair pricing in financial markets but these operations require expensive low latency market access and are dominated by market insiders and are not possible for retail traders.
While I do believe it provides liquidity in all cases, let's just focus on the zero-sum aspect. My response is - so what if it's a zero sum game? Why should someone care if that's the case? It's not as if all startups out there add value to the world.
There is a fundamental difference between startups and "buy low, sell high" trading. Even if only a minority of startups succeed, they can create significant value for society by introducing innovative products, services, or technologies. In contrast, even if the majority of traders were "successful," there would be no net value created, as one trader's gain is another's loss, and the overall wealth in the system remains unchanged.
> so what if it’s a zero sum game?
While you may not initially be concerned about the distinction between positive-sum and zero-sum activities in society, studying history and economics may change your perspective. Positive-sum activities, such as entrepreneurship and innovation, contribute to economic growth and improved living standards, whereas zero-sum activities, like “buy low sell high” trading, do not.
> why should someone care?
Consider this analogy: if "buy low, sell high" trading is like playing chess, and your opponents are a collection of the best chess engines money can buy, operated by the world's top experts (think Magnus Carlsen), how profitable can you realistically expect your trading to be? The odds are heavily stacked against the retail trader. Some professional traders pay brokers to have retail orders routed to them for this reason much like how professional poker players want to play amateurs for their income.
While a small fraction of professional traders manage to beat the returns of buy-and-hold index investing, the fleeting existence of market-beating strategies is not a valid reason for the average investor to attempt them. Just as you cannot predict which lottery tickets will be winners, you cannot foresee which trading strategies will outperform. If this was possible highly paid professional traders that devote their life to it would be able to do it but only a few actually do and luck plays a big role in their success.
Markets have “seasons” and what seems to work in one season can be devastating in another. Markets also change in response to the trading strategies being used (aka “reflexivity”) and “paper testing” can give false confidence.
> Positive-sum activities, such as entrepreneurship and innovation, contribute to economic growth and improved living standards, whereas zero-sum activities, like “buy low sell high” trading
Right, so where do hedge funds fit in? They hire a lot of people and pay them very well; they sponsor tech events like this: https://www.man.com/pydata-london-59th-meetup. According to your rationale, they don't add any value to society?
And if you add the criteria that they should be a business - how do you think these active investors start? Do you think they just suddenly have $500m in funding and 50 people?
> how profitable can you realistically expect your trading to be? The odds are heavily stacked against the retail trader.
I'd expect it to be hard to become profitable, just like any other kind of business out there. You need to put in a lot of effort, a lot more than what people tend to expect; again, like with any other business.
> Markets have “seasons” and what seems to work in one season can be devastating in another. Markets also change in response to the trading strategies being used (aka “reflexivity”) and “paper testing” can give false confidence.
Sounds like a VC-funded startup to me :) You can make an amazing pitch deck, raise millions in funding, and burn it all to the ground when you realise there are no customers.
Hedge funds pool capital from a limited number of accredited investors or institutional investors. The term "hedge" originally referred to the fund's strategy of attempting to mitigate risk and generate stable returns regardless of market conditions. This was often achieved through a combination of long and short positions, as well as the use of derivatives and leverage.
Traditional hedge funds aimed to provide an "insurance policy" for investors, ensuring that they would be protected from market volatility. However, this protection comes at a cost, typically in the form of lower returns compared to the overall market during bull markets. In exchange for reduced volatility, investors in these traditional hedge funds would accept more modest returns.
Over time, the hedge fund industry has evolved, with many modern hedge funds focusing more on generating outsized returns rather than simply hedging against market risk. These funds employ a wide range of strategies, including long/short equity, global macro, arbitrage, and activist investing, among others. Successful hedge funds prioritize their own capital and that of their employees, rather than accepting outside investors. If a hedge fund is actively seeking outside capital, it may be a sign that the fund has not been particularly successful in generating strong returns on its own.
> According to your rationale, they (hedge funds) don't add any value to society?
Hedge funds can help provide liquidity in financial markets. Their trading strategies, while risky, can aid in price discovery but their activities don't produce anything tangible and mainly just shift money around between participants, as opposed to creating real economic value. Hedge funds are also criticized for increasing market volatility and systemic risk in pursuit of short-term profits.
> how do you think these active investors start? Do you think they just suddenly have $500m in funding and 50 people?
How do tobacco companies start? Just because smoking has the effect does it mean there can not be large tobacco companies employing lots of people? Yet the trend for tobacco companies is clear. So what is the trend between active vs passive trading? In 2000, passive funds accounted for about 12% of the U.S. stock market. By 2020, this figure had risen to over 50%. Why do you suppose this trend exists?
If you think smoking is fine you are free to smoke. You can also show off your large bank balance and argue that tobacco products “generated wealth” for you. However if you advertise smoking as being good for society expect to be challenged about your claims.
>> The odds are heavily stacked against the retail trader.
> I'd expect it to be hard to become profitable, just like any other kind of business out there. You need to put in a lot of effort, a lot more than what people tend to expect; again, like with any other business.
If you attempt to make it your business and heavily invest into it you are no longer a retail trader.
Is it a profitable business? The distribution of those who can earn an income with “buy low sell high” trading tends to follow a power law or Pareto distribution, where a small percentage of top performers earn a disproportionately large share of the total income. Unless you rank among the top few you are the source of income for those that do.
In competitive tournaments like chess / poker a small number of elite players consistently perform well and earn significant sums while the majority of players earn little or no income. The number of top spots is very limited and the competition is fierce.
When it comes to “buy low sell high” trading:
(1) the income is being earned is not from advertising sponsorships but only from other active traders who you can out predict.
(2) active strategies are not useful against index funds that buy and hold much like prediction is not useful against a rock paper scissors random strategy.
(3) As investors educate themselves the fraction of active traders is shrinking much like the pool of people that buy tobacco products is shrinking
> Sounds like a VC-funded startup to me :) You can make an amazing pitch deck, raise millions in funding, and burn it all to the ground when you realise there are no customers.
It may be con artists selling snake oil. It may be honest people trying their best. Time helps tell the two apart however you do not need time to understand that the tobacco industry is not a good industry but exists for legacy reason. Yes it can be profitable but consider where those profits come from and what the future looks like as more become educated.
> I never claimed that my strategy beats the sp500. It has underperformed, especially the way the market has been. The market has returned 25% over the last year.
After two years of research, you have developed a trading strategy that, compared to the S&P 500, "has underperformed, especially the way the market has been"? If your strategy depends on buying / selling it will trigger taxes each time this happens, yes? Short term gains taxes? When people switch from sp500 to your strategy how much less will then earn over a decade? Yet you claim your strategy "works"?
> The expected performance of the strategy is somewhere between 10% and 30%, but it is not clear what exactly.
If a profitable pattern exists, what makes you think nobody else has found it and that it will continue to exist in the future? Is it because few look for these profitable patterns? Are they poorly funded? Do they lack incentives to do it?
> I don't think it's necessarily fair to call others "dumb money". They can hold for longer and still profit with the market.
"Dumb money" refers to hobby traders who believe stock trading will make them rich. Some rely on gut feelings, while others use advice from astrology or technical analysis. Why do you suppose professional traders pay for order flow from such traders?
> The market is not a zero sum game because the market capitalization is several multiples of the total invested funds. The market is a money printer in its own way.
For every trade, there is a counterparty on the other side, and your gain is their loss and vice versa. This makes trading a zero-sum activity.
Furthermore, for every trade, there are middlemen who charge fees, making trading a negative-sum activity.
Long-term buying and holding is positive-sum investing and does not require a trading strategy or searching for profitable patterns.
> Precious metals as a currency do not work because the government doesn't have the freedom to mint an unlimited supply of hard assets.
The purpose of a currency is to facilitate transactions and maintain stable prices in the short term while losing value in the long term to discourage hoarding. Gold cannot achieve this because the amount of gold cannot be adjusted to match the size of the economy as it grows or shrinks. When the economy grows, using gold as money will cause it to stall because people will save up gold as it becomes more valuable instead of spending it. Deflationary currencies like gold are detrimental to economic growth, which is why modern countries no longer use them.
> The government holds a gun to people's heads, locking them up if they don't use the highly inflationary national currencies.
Are you surprised by inflation? Saving your wealth using a currency does not make sense since it is designed to lose value over time.
If you prefer precious metals, what prevents you from keeping your wealth in gold (a negative-sum asset) and converting it to fiat currency only when needed?
> Countries are run by politicians, bureaucrats, and armed police mafia who care about their paycheck and pensions which wouldn't be so big if not for free moneyprinting at the expense of the citizenry. The people do not have freedom of their choice of money.
Countries are "owned" by their voters. Government debts are your debts. Inflation is just another tax like other taxes. If you are dissatisfied with the current situation, get involved to change it.
HN had an error during saving and when I attempted again I picked the wrong message and can not change or delete it now. I will add an extra answer later.
This is true, but traders like me chase it anyway, refining the strategy at each failure. If there is no refinement possible, then the trades should stop.
You make it sound like you are improving yet with all traders like you "chasing it anyway, refining the strategy at each failure" what exactly are you improving? When you play a game like "rock paper scissors" what refinement is possible?
Due to market feedback loops the patterns you look for profits are transient. When they do persist do you ever wonder about them being like fake "tells" in poker that lure you to bet big setting you up to be smashed later?
High frequency trading / front running information and arbitrage may be profitable but require low latency costly access.
Apart for that my impression is that technical analysis based short term trading (as opposed to long term investing) is on net a negative sum activity. Like a game of "rock paper scissors" there is nothing to improve.
I don't view it as RPS. I view it a bit as a game of chess. Whether it is a net positive or net negative, time will tell. I am not claiming success. Those who are so mentally closed off that they will downvote any differing opinion without understanding it will never succeed with it.
Given the possible winnings and bad players lose their chips to good ones and retire
what skill level do you suppose is on the other side of this game? Given this you still play?
> Whether it is a net positive or net negative, time will tell.
For you "time will tell" because evidence from rational thinking and the experience of countless others is not enough?
> Those who are so mentally closed off that they will downvote any differing opinion without understanding it will never succeed with it.
Hence I am not voting but asking questions trying to understand your "differing opinion". You view the activity as a game of chess. I view it as an effort to construct a perpetual motion machine. What matters is the money and time wasted on what is known not to be possible. What matters is why someone who seems intelligent fails to understand this. Perhaps they do and so actually have a different plan than building a perpetual motion machine. Maybe they are building an audience of those who believe in perpetual motion machines?
> I am not claiming success.
Yet you or at least the author of the article seem to believe if they stick with this "research" they will be successful? How long till they claim to have success and, for a price, offer to share the benefits of their success with you?
You wouldn't want to confuse my cautiousness with failure. My system works, but:
(1) It doesn't beat the market on green market days or overall. Given how the market has been since October 2023, you'd do a lot better by just holding an ETF.
(2) It does make money on red market days too.
(3) Overall it does earn and is successful, but I express caution because I think that at least four consecutive years of success is necessary before labeling a strategy successful. I haven't run it for that long.
(4) I keep doing experiments, several of which turn out to be failures, although I have done enough of them already, and I'd like to move on to something else now.
(5) I don't see the future, but I adapt to it. I cannot promise you that this will always work, that it won't blow up.
> Given the possible winnings and bad players lose their chips to good ones and retire what skill level do you suppose is on the other side of this game?
There are all levels of skills and of time horizons. Those with bad skills either quit or adapt. Others just have to hold for longer to see profit.
> I view it as an effort to construct a perpetual motion machine.
The reason why the market is viewable from the perspective of a perpetual motion machine is due to excessive federal moneyprinting shaking things up. If not for it, if dollars were backed 1:1 by hard assets like gold, I think it'd be a lot calmer.
> How long till they claim to have success
It took me a year to come up with a strategy that looked to work, but another year to simplify it to the bare essentials and to decrease risk where I could.
Being open-minded, faithful, and steadfast are essential prerequisites to discovery. If you mind is already made up, that would make you like everyone else.
> My system works, but: (1) It doesn't beat the market on green market days or overall. Given how the market has been since October 2023, you'd do a lot better by just holding an ETF. (2) It does make money on red market days too (3) Overall it does earn and is successful, but I express caution because I think that at least four consecutive years of success is necessary before labeling a strategy successful. I haven't run it for that long.
You discovered a trading strategy that beats sp500 index fund as long as you know ahead of time if the market will be red vs green?
> There are all levels of skills and of time horizons. Those with bad skills either quit or adapt.
With losses forcing out dumb money the other side of a typical trade will be parties that tend to win their trades. Are you "paying for order flow" to trade against dumb money?
> The reason why the market is viewable from the perspective of a perpetual motion machine is due to excessive federal moneyprinting shaking things up. If not for it, if dollars were backed 1:1 by hard assets like gold, I think it'd be a lot calmer.
I do not view the market as a perpetual motion machine. I view market beating strategies as a perpetual motion machine. Federal money printing changes the unit of account so there appears to be asset price inflation but unless you are holding the currency nothing really changes just size if the stick being used to measure things. Precious metals as a currency do not work which why they are no longer used for that purpose. If they did work better you would see successful counties continue to use them not abandon them.
I never claimed that my strategy beats the sp500. It has underperformed, especially the way the market has been. The market has returned 25% over the last year. The expected performance of the strategy is somewhere between 10% and 30%, but it is not clear what exactly.
I don't think it's necessarily fair to call others "dumb money". They can hold for longer and still profit with the market.
The market is not a zero sum game because the market capitalization is several multiples of the total invested funds. The market is a money printer in its own way.
> Precious metals as a currency do not work which why they are no longer used for that purpose. If they did work better you would see successful counties continue to use them not abandon them.
You're 100% wrong here, also 100% brainwashed. Precious metals as a currency do not work because the government doesn't have the freedom to mint an unlimited supply of hard assets. The government holds a gun to people's heads, locking them up if they don't use the highly inflationary national currencies. Countries are run by politicians, bureaucrats, and armed police mafia who care about their paycheck and pensions which wouldn't be so big if not for free moneyprinting at the expense of the citizenry. The people do not have freedom of their choice of money.
> I never claimed that my strategy beats the sp500. It has underperformed, especially the way the market has been. The market has returned 25% over the last year.
After two years of research, you have developed a trading strategy that, compared to the S&P 500, "has underperformed, especially the way the market has been"?
> The expected performance of the strategy is somewhere between 10% and 30%, but it is not clear what exactly.
If a profitable pattern exists, what makes you think nobody else has found it and that it will continue to exist in the future? Is it because few people look for these profitable patterns? Are they poorly funded? Do they lack incentives to do it?
> I don't think it's necessarily fair to call others "dumb money". They can hold for longer and still profit with the market.
"Dumb money" refers to hobby traders who believe stock trading will make them rich. Some rely on gut feelings, while others use advice from astrology or technical analysis. Why do you suppose professional traders pay for order flow from such traders?
> The market is not a zero sum game because the market capitalization is several multiples of the total invested funds. The market is a money printer in its own way.
For every trade, there is a counterparty on the other side, and your gain is their loss and vice versa. This makes trading a zero-sum activity.
Furthermore, for every trade, there are middlemen who charge fees, making trading a negative-sum activity.
Long-term buying and holding is positive-sum investing and does not require a trading strategy or searching for profitable patterns.
> Precious metals as a currency do not work because the government doesn't have the freedom to mint an unlimited supply of hard assets.
The purpose of a currency is to facilitate transactions and maintain stable prices in the short term while losing value in the long term to discourage hoarding. Gold cannot achieve this because the amount of gold cannot be adjusted to match the size of the economy as it grows or shrinks. When the economy grows, using gold as money will cause it to stall because people will save up gold as it becomes more valuable instead of spending it. Deflationary currencies like gold are detrimental to economic growth, which is why modern countries no longer use them.
> The government holds a gun to people's heads, locking them up if they don't use the highly inflationary national currencies.
Are you surprised by inflation? Saving your wealth using a currency does not make sense since it is designed to lose value over time.
If you prefer precious metals, what prevents you from keeping your wealth in gold (a negative-sum asset) and converting it to fiat currency only when needed?
> Countries are run by politicians, bureaucrats, and armed police mafia who care about their paycheck and pensions which wouldn't be so big if not for free moneyprinting at the expense of the citizenry. The people do not have freedom of their choice of money.
Countries are "owned" by their voters. Government debts are your debts. Inflation is just another tax like other taxes. If you are dissatisfied with the current situation, get involved to change it.
I am just stunned by your worldview which I find is wrong in so many ways. It's no wonder that you couldn't muster the intelligence to come up with any profitable strategy at all. It is where the rubber meets the road. Moreover, you go about confidently asserting and spreading your disinformation, attempting to brainwash others with your false beliefs and lies.
> has underperformed
Like I said, 25 is between 10 and 30. It depends what exactly the strategy's performance is, and we don't know what it is for various reasons. I look at it day to day.
> If a profitable pattern exists, what makes you think nobody else has found it and that it will continue to exist in the future?
You with your limited worldview are presupposing that all strategies work because others haven't found them. That's not how they all work. Some work despite the fact or even because of the fact.
> "Dumb money"
A more respectable term is retail traders. Everyone who is in it is on their path of learning, and it's wrong to call a child dumb because the child hasn't grown up yet.
> Why do you suppose professional traders pay for order flow from such traders?
Wrong again. Professional traders specifically discard such retail noise, although I suppose it could be used in certain contexts.
> makes trading a zero-sum activity.
Since you're unfamiliar with the mechanics of trading, if I place an ask for 123.45, and a trade executes at that price, that price then is used to calculate the market cap of a stock. The number has no basis in any zero sum game; it is whatever the buyer last paid.
> Gold cannot achieve this because the amount of gold cannot be adjusted to match the size of the economy as it grows or shrinks
This is your biggest lie yet. As a user of money, despite the propaganda peddled by people like you and by the government, I am not interested in the economy which I consider to be an orthogonal concept. If your lies were the truth, bitcoin wouldn't exist, and gold wouldn't carry value either. Gold was used as a currency for thousands of years, also by the Romans and by the US with a gold-backed dollar. It took Nixon to nix it, who was a criminal.
Yes, gold is detrimental to unsustainable economic growth, but unsustainable economic growth itself is detrimental to existence due to it causing severe environmental issues like climate change. As such, gold is conducive to a somewhat more sustainable economic growth. Anyway, as a user of money, I couldn't care less about the destructive agenda of economic growth.
> Countries are "owned" by their voters.
This is feel-good nonsense. Countries are owned by those with the money.
We are done here. I do not desire to continue a conversation with someone who unquestioningly peddles whatever untruths they've been taught without regard for the actual truth.
> I am just stunned by your worldview which I find is wrong in so many ways.
100% my reaction towards your comments as well.
> It's no wonder that you couldn't muster the intelligence to come up with any profitable strategy at all.
Studies have shown that over the long term, the majority of actively managed funds fail to consistently outperform their benchmark indexes after accounting for fees. With facts like these my intelligence says stick to index investing.
> Moreover, you go about confidently asserting and spreading your disinformation, attempting to brainwash others with your false beliefs and lies.
I am sharing commonly accepted knowledge. It is commonly accepted that buy low sell high trading strategies are like perpetual motion machines. This does not stop some poorly educated honest inventors from inventing them however. Con artists also “invent” them and offer them for sale or offer their expertise to help build one for yourself. Which of these you are I am not sure yet. Early on it can be hard to tell since a good con artist is subtle.
> Like I said, 25 is between 10 and 30. It depends what exactly the strategy's performance is, and we don't know what it is for various reasons. I look at it day to day.
You realize investments are not judged by returns but metrics like returns per risk such as sharpen ratio, sortino ratio, etc? If risk did not matter leverage can trivially multiply returns. TQQQ for example can look attractive till you realize a daily ~30% index drop wipes you out as happened with oil versions of such funds during COVID pandemic.
> You with your limited worldview are presupposing that all strategies work because others haven't found them.
Once a strategy is known, it gets rapidly arbitraged away as traders compete to exploit the inefficiency. Widespread adoption of a strategy changes market dynamics in ways that invalidate the original premise. Strategies that become crowded trades are vulnerable to severe losses if sentiment turns and everyone rushes to exit at once.
> That's not how they all work. Some work despite the fact or even because of the fact.
Yes! Pump and dump schemes and similar fraudulent trading strategies exploit popularity to manipulate markets. These scams often involve self-proclaimed "gurus" who heavily promote a stock or cryptocurrency, artificially inflating its price. They lure unsuspecting and inexperienced investors with promises of easy profits, diverting them from proven investment strategies like index investing.
The more popular and influential the guru, the greater their ability to temporarily move markets with their recommendations. In essence, the guru's predictions can become a self-fulfilling prophecy in the short term, as a herd of enthusiastic followers rush to buy the promoted asset. However, this popularity is manufactured and fleeting.
What the followers don't realize is that the guru has already quietly accumulated a position beforehand at a much lower price. As the guru's devotees drive up the price by buying en masse, the guru sells their holdings at the artificially inflated prices, pocketing significant profits. The asset's price then collapses, leaving the guru's followers with substantial losses.
In this way, pump and dump schemes enable unscrupulous individuals to exploit the trust and capital of unsophisticated investors. Regulators are increasingly cracking down on these scams, but they remain a persistent problem, particularly in lightly regulated markets like cryptocurrencies. Investors should be highly skeptical of "get rich quick" trading tips, especially those popularized by social media influencers or self-declared experts promising unrealistic returns.
> Wrong again. Professional traders specifically discard such retail noise, although I suppose it could be used in certain contexts.
So why do some professional traders pay to trade with retail order flow? They pay for it so
They can “specifically discard such retail noise”?
Obviously not. Professional traders try to exploit retail order flow by "front-running" - getting in front of large retail orders that are likely to move the price. If they can buy right before a large influx of retail buy orders hits the market, they can then sell into that buying pressure for a quick profit. Order flow can also give a view into where retail traders are placing stop-loss and limit orders. Professional traders can use this to their advantage, triggering stops or fading popular limit order levels.
> The number has no basis in any zero sum game; it is whatever the buyer last paid.
Stock trading can be considered a zero-sum as one trader's gain is another trader's loss. When someone buys a stock and the price goes up, they profit, but the person who sold it to them missed out on those gains. Conversely, if the stock price goes down, the buyer loses money while the seller avoided those losses. On any gi rn day of trading the total wealth of all participants remains the same, with money just changing hands between them.
In the long run however stock trading is actually a negative-sum for traders.
Traders pay fees to brokers, exchanges, and other intermediaries for executing their trades. These costs eat into the overall profits, making the total wealth of all participants decrease over time.
There is typically a small difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask). This spread represents a loss for the overall market, as it's a cost that doesn't contribute to any participant's profits.
Time and resources devoted to trading could have been used for other productive activities, such as starting a business or investing in education, which could have generated wealth for the overall economy.
> If your lies were the truth, bitcoin wouldn't exist, and gold wouldn't carry value either.
Tell me why are prices rarely advertised using gold or Bitcoin? Might it be because these are speculative assets rather than currencies. If they were widely accepted as currencies, you would see prices consistently posted using units of gold or Bitcoin. However, this is not the case due to their highly volatile value, which is a result of the lack of active supply management.
The primary purpose of a currency is to maintain stable prices while discouraging the hoarding of the currency itself. This is achieved by controlling the money supply to maintain a small, consistent rate of inflation.
When excessive debt accumulates in the economy, inflation may be strategically increased to help clear that debt.
This is a fundamental aspect of how modern monetary systems function, and it is well-understood by those with an education in economics. There are no surprises here.
It is generally unwise to store wealth using a fiat currency for extended periods, as it is not designed for that purpose. Instead, the main objective of a fiat currency is to facilitate transactions and promote overall economic health. Other investment vehicles, such as real estate, stocks, or bonds, are more suitable for long-term wealth preservation and growth.
> Gold was used as a currency for thousands of years, also by the Romans and by the US with a gold-backed dollar.
Societies used to not care much about washing and keeping clean for thousands of years. For this reason we should go back to that? The fallacy in this argument is an appeal to tradition or appeal to antiquity. Just because something was done a certain way for a long time, does not necessarily mean it is the best or most appropriate way to do things now.
> Anyway, as a user of money, I couldn't care less about the destructive agenda of economic growth.
Economic growth today is essential for creating a better future for coming generations. By expanding productive capacities, raising living standards, and spurring innovation, we lay the foundation for a world of greater prosperity and human flourishing.
Growth enables critical investments in education, research, and governance that pay long-term dividends. We have a moral obligation to be good ancestors by supporting economic dynamism. While some argue growth is unsustainable, it is actually the key to developing the technologies needed for both abundance and sustainability.
>> Countries are "owned" by their voters.
> Countries are owned by those with the money.
Indeed spending choices are votes that shape the economy. Every purchase sends a signal to producers about what to make more or less of. Money is not just for transactions, but a voting system that guides the market based on consumer preferences.
Collectively, our financial decisions determine which businesses succeed or fail. Each dollar is a vote for the type of world we want. So daily purchases, while they may seem small, wield power in creating the economic reality we all experience.
> We are done here. I do not desire to continue a conversation with someone who unquestioningly peddles whatever untruths they've been taught without regard for the actual truth.
I expect there may be others that think as you do and I hope our conversation helps them. Thank you for being my foil!
> The reason why the market is viewable from the perspective of a perpetual motion machine is due to excessive federal moneyprinting shaking things up. If not for it, if dollars were backed 1:1 by hard assets like gold, I think it'd be a lot calmer.
The Panic of 1873, the Panic of 1893, and the Panic of 1907 would like a word.
We tried dollars directly convertible to gold. The result was not calm markets.
I think the risk of a 35% drawdown is too big with this strategy. Even if 20%, it's still too big. Perhaps 15% would be about at the borderline of okay.
No matter how you minimize drawdown from a backward perspective, there is a reasonable chance there will be an event in the future where you will have a 50pct drawdown.
Many of these strategies stopped working in 2008 because the markets became too crowded with players exploring them. Especially the ones that have low drawdowns attract a lot of competition. The writing was already in the wall with the quant bloodbath of 2007.
While I entirely agree in spirit and in context, and I get the point too, the historical specifics as clarified by GPT were:
During the period from 2000 to 2013, the S&P 500 did experience significant drops, particularly during the dot-com bubble burst in the early 2000s and the financial crisis of 2007-2008. The largest drawdowns in this period were:
1. *Dot-com Bubble (2000-2002)*: The S&P 500 fell significantly after the peak in March 2000, dropping about 49% until it bottomed out in October 2002.
2. *Global Financial Crisis (2007-2009)*: The index again suffered a major drop, losing approximately 57% of its value from its peak in October 2007 to its low in March 2009.
However, these drawdowns did not last continuously for 13 years, nor did they result in a cumulative drawdown of 60% sustained over that entire period. The S&P 500 recovered from these lows and even reached new highs within the timeframe specified.
Makes sense. The reason I highlighted is because I'm finding that most people overestimate how safe some investment strategies are without actually looking at the historical data.
Regarding tools, I use Python. I wrote the backtesting software many, many, many years ago during my Master's degree, and I've been refining it ever since.
It's an event-driven engine (they are slower than vector-based engines, but they are easier to write strategies for, understand, and debug) with all the bells and whistles, similar to the late Zipline. In fact, I tried most of the Python backtest engines that exist, and that's why I prefer to use what I built over the years: I have 100% understanding of what’s happening and 100% control.
I’m thinking about open-sourcing it… anyway, the logic is not that complicated.
Markets are full of feedback loops, so you can't expect the same results with "paper" backtesting or "paper" forward testing as with real trades, especially in larger amounts.
With such paper testing you can discover and fool yourself with amazing high-probability, high-earning strategies that come with the hidden surprise of low probability catastrophic losses.
For example, many naive gamblers think that a strategy with a 45% chance to win, combined with betting to cover losses, will nearly always succeed because the odds of losing ten times in a row seem low. However, when the inevitable 11th loss occurs, it can be devastating.
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