How many of us as algorithmic traders, from time to time feel as though we don't really know what we are doing, that in fact, we don't know much at all about our chosen field? When I read a paper like the one referenced above, I think wow, I can barely follow the math in this, imagine trading against the algos designed or even influenced by the person who wrote the article.

Then the thoughts slide into - people think I know what I am doing, who am I kidding? My algos are so simple, they don't use a lot of amazing mathematics, they really depend on trading experience, common sense and a lot of code. If after 15 years as an algo trader, I feel like this at times, it occurred to me it would be helpful to hear what other traders feel about the subject and their own experiences with this issue.

Plenty of impostors have risen to the very top of their professions and I'm not sure algo trading should be any different. I read many of the papers from the mathematical finance journals including Nobel prize winners and rarely felt more equipped to make money by the end of it. In my opinion most traders are far better off hooking on to a necessary (in)efficiency and focussing in on that. If a strategy is too difficult to get your arms around it will inevitably blow up at some point so best to keep things simple enough to be able to repeatedly crunched. Pure statistics is definitely required and many survive on that alone. Even the very best get caught out from time to time (quant quake for example), which is annoying but must be accepted and put down to tail risk as in any randomised system.

https://arxiv.org/pdf/1712.07649.pdf

@Kevin - I definitely agree with keeping things simple. I read every paper I can get my hands on and while I rarely incorporate much, if any, of the math, I am almost always impressed with the level of effort it must have taken to produce the paper.

One of the easiest ways of making money is to concentrate on first rate order handling/execution and watch your risk. Oh and always keep in mind the first rule of trading - don't do stupid stuff.

Roberto, thanks for posting the link to the paper.

Isn't this paper a 64 pages of B ull S hit...Why need such profound thinkings for something as simple as trading

Well, thanks to a quick google search, I now know what imposter syndrome is :)

It's funny after reading the FPA scam alerts forum, you would see who the real imposters are.

PS: Scott Boulette as a moderator, you should edit the OP to include the link to the paper.

@Jon - I skipped doing that on purpose to avoid complicating the main point. Roberto linked to it above.

@Rajiv - if you knew Valerii I doubt you would think anything he writes is BS. Do a quick search on him and you will see not only his background but his current position. Plus on top of everything else, he is a genuinely nice guy.

The issue is pretty simple, reading a paper like that can make you

1) feel like you want to know more about the subject

2) think you will never know enough (the impostor syndrome) which by the way actually often goes along with 1

3) get hostile toward the author.

I now am willing to bet there are several other responses I hadn't considered.

@Rajiv - if you knew Valerii I doubt you would think anything he writes is BS. Do a quick search on him and you will see not only his background but his current position. Plus on top of everything else, he is a genuinely nice guy.

The point I was trying to make is straightforward, reading a paper like that can make one

1) feel like you want to know more about the subject

2) think you will never know enough (the impostor syndrome) which by the way actually often goes along with 1

3) get hostile toward the author.

I now am willing to bet there are several other responses I hadn't considered.

You can be the best at your game by far and still there will be a silver bullet come your way. This one event would be like ants going along their way masters of their domain and someone every now and then steps on their kingdom. Thay have no idea why it happened or how to prevent it, however they can learn that destruction is imminent.

There is always one missing piece of the puzzle that frankly I don't believe but maybe a hand full of people even know it exist. It's hard to describe and I have never seen a word that has described it accurately because it involves a combination of events such as /expectancy/magnitude/amplitude/ all rolled up into one.

@Mark - your ant analogy is a good one; as long as no one gets out a magnifying glass in order to burn the kingdom down, I think we will do just fine. Words I have heard relative to your last statement are harmonics and rhythm but you are correct, it is difficult to capture in a single word. I think of it as "units of the gods" - at what point in terms of movement does price catch the attention of a larger time frame trader? Find that point and either go with them or stay out of the way.

Rajiv, I agree with you that in terms of B and S, trading is simple: Buy low and Sell high. Symbols, following them, can create a difference. 64 pages were written in unison with real markets, which organize the randevue after B "Ull & Traders" and, after S, "hit them". I wish you good trading and persistence in fighting with this unpleasant but not necessarily inevitable circumstance. At least, I wanted to say there that the circumstance is not inevitable. However, the selected format of the "64 squares of the chessboard" hardly could compete with the market's simplicity noticed by you. Best Regards, Valerii

If anyone else feels comfortable sharing their views on the subject of this thread, I am sure the community would appreciate it. Additionally, if anyone wants to contact me directly via pm because they would rather not post directly to the thread, I can post a high level summary of those conversations.

I promise you that it is highly unlikely you have made mistakes that are any worse than anyone else. Jack Schwager the author of Market Wizards (a collection of famous trader profiles), made the observation once that the majority of his subjects had blown up not just one but several accounts before they became successful. That would certainly lead one to wonder if they know what they are doing.

"Jack Schwager the author of Market Wizards (a collection of famous trader profiles), made the observation once that the majority of his subjects had blown up not just one but several accounts before they became successful" . For most of us (the average mortal), we only get ONE good shot at being succesful. We do not have the luxury to blow up several accounts and get money to get back into the game. So, the real name of the game of "survival". If you wait until you "know it all", you will never get started. So, it is arriving at the point where you say "I know enough, I have a strategy to survive" that is the goal.

@Marc - I agree 100% that survival is the name of the game; however, at least initially I would define survival more in terms of not giving up the dream of trading rather than any particular return on capital.

Your experience may be different but virtually every trader I know blew up at least one account before they became profitable. They regrouped and started trading again once they had saved enough. In that respect, I followed a very similar path. In my case algorithmic trading proved to be the key to profitability because it tends to eliminate the behaviors that led to trouble in the first place.

My advice for traders, especially those who are struggling; try to avoid catastrophic failures (as Marc mentioned), take a break if you need to but don't give up your dream of trading without a fight, keep studying and the rest will sort itself out. There are a lot of good people out there willing to help and remember, most traders have times where they feel like impostors.

@scott - thanks for your feedback. It is - as always - highly appreciated.

Indeed, we haven't blown up any accounts (= catastrophic losses) for the simple reason our risk management does not allow this to happen. Time tested systematic models developed in-house are strictly adhered to and for newbies, what we do looks very booooring. To institutional investors however, it is reassuring.

We have advized aspiring traders in the past and encouraged them to keep on working on ideas with a personal twist. Where we end/leave the discussion is the point when they start talking about doubling their money. Such market circumstances happen rarely and when they do, the "newbies" are mostly the ones to be on the wrong side due to lack of experience or lack of faith in their own abilities under pressure. There is no shortcut to success !! kind regards

@Marc - very well put; you are spot on. Managing risk is the most difficult part of trading by far. I especially like your comment regarding leaving the discussion with traders who talk about doubling their money. Show me abnormally high returns and in all likelihood you have a trader using leverage that is unacceptable from a risk management standpoint.

One simple thought - if a trader is praying while in a trade, they are almost certainly over leveraged.

@ Scott : nicely put my friend. When a trade is underwater and the trader "hopes" the market will turn around, my standard line is "Hope is the worst analytical tool there is"

@Marc, I think I will start using your phrase - with proper attribution of course.