[imnotlost]

There is a well-worn joke in the economics profession that involves two economists – one young and one old – walking down the street together:

The young economist looks down and sees a $20 bill on the street and says, “Hey, look a twenty-dollar bill!”

Without even looking, his older and wiser colleague replies, “Nonsense. If there had been a twenty-dollar lying on the street, someone would have already picked it up by now.”

[jjav]

> “Nonsense. If there had been a twenty-dollar lying on the street, someone would have already picked it up by now.”

I don't remember too much from my finance courses in business school but one comment from the professor always stayed with me. He said that if there was any succesful pattern to trading, there are firms on wall street which can afford many orders of magnitude more brain power and compute power than you, so they will zero in on it pretty quick if it works. As soon as they do, it doesn't work anymore. Proof: Otherwise they would all be making infinite profit.

Makes sense. This means any trading algorithm that can be programmed is pretty much obsolete (if it ever was any good) by the time it's working.

[tim333]

Then how come this guy became worth $25bn through algo trading? https://en.wikipedia.org/wiki/Jim_Simons_(mathematician)

[trashtester]

You're proving the point of jjav. Jim Simons was an advanced mathmatician able to employ novel ideas to generate an alpha. Institutions with access to top level mathematicians and massive compute resources are still doing that.

But such algorithms only work as long as they're kept secret. As soon as the algorithm is made public, every large institution will incorporate them into their trading robots, meaning the information will become priced in to the market value instantly.

There are really only five ways to beat the market:

1) Insider information. (Illegal) 2) Extensive market research, where you understand the companies better than the market does. (Requires A LOT of work) 3) Direct contribution to the company's success (you need to have the talent of a Elon Musk, Mark Zuckerberg or Bill Gates). 4) Mathematical/computational superiority (you need to be at the level of Jim Simons or have the capital to hire such people) 5) Luck.

Mainstream technical analysis is not on the list.

That being said, I'm sure the current AI revolution is leaving some doors open to massive profits to some clever person able to create a model that predicts patterns better than most other algo trading robots.

[whimsicalism]

Replace the twenty dollar with the tens of millions at minimum if basic technical analysis (ie. dead cat bounce level stuff) is leveragable and yeah I think you have a pretty close approximation to reality: more likely you are hallucinating than you found $20 million on the street.

[arvinsim]

Isn't this related to the efficient market hypothesis?