diff --git a/README.md b/README.md index e96a054..75769c3 100644 --- a/README.md +++ b/README.md @@ -18,31 +18,34 @@ # Introduction +*Please note that this project is still super-pre-alpha, so hold your bags for now...* + [*The Medallion Fund*](https://www.cornell-capital.com/blog/2020/02/medallion-fund-the-ultimate-counterexample.html) is one of the core inspirations for this project. It showed that quantitative trading, when executed perfectly, has enormous potential for success and profit. For the duration of the fund's existence, it averaged an astonishing annualized return of **63.3%**, and it didn't have a single negative year, including the **2000 dot-com bubble** and **2008 financial crisis**. This level of success caused many more to question the highly controversial [*Efficient Market Hypothesis*](https://www.investopedia.com/terms/e/efficientmarkethypothesis.asp), whose definition will squash the hopes and dreams of any u̶n̶e̶m̶p̶l̶o̶y̶e̶d̶ ̶e̶c̶o̶n̶ ̶m̶a̶j̶o̶r̶ traders who aims to beat the market with technical analysis. Fortunately, t̶h̶e̶i̶r̶ ̶p̶a̶r̶e̶n̶t̶s̶ ̶s̶t̶i̶l̶l̶ ̶l̶o̶v̶e̶ ̶t̶h̶e̶m̶ the efficient market hypothesis has been proven wrong in many occasion (*although I question that every time I make a trade*). Still, a majority of the funds out there do not beat the market, not to mention retail investors. Point being, it's possible to beat the market, maybe even by a lot, but it's doesn't make it easy, not by a long stretch. Now, I'm no [*Jim Simons*](https://en.wikipedia.org/wiki/Jim_Simons) d̶u̶h̶ (*peace be with him* 🙏🏼), and the Medallion Fund keeps most details of its methodologies a secret, but Jim Simons and others have provided some valuable information to the public, maybe just enough to make m̶e̶ ̶r̶i̶c̶h̶ a difference. I have summarized them into four points (*note that a lot of them are my personal interpretations*) ### It's Just Math -- Algorithmic trading is at the core of the Medallion Fund, with Jim Simons himself being a renowned mathematician in his earlier life. Their approach was almost purely from the numerical perspective, rather than finance. S̶o̶r̶r̶y̶ ̶p̶a̶l̶,̶ ̶t̶h̶a̶t̶ ̶e̶c̶o̶n̶ ̶d̶e̶g̶r̶e̶e̶ ̶t̶h̶a̶t̶ ̶y̶o̶u̶ ̶"̶w̶o̶r̶k̶e̶d̶ ̶h̶a̶r̶d̶"̶ ̶f̶o̶r̶ ̶i̶s̶ ̶n̶o̶t̶ ̶g̶o̶n̶n̶a̶ ̶p̶a̶y̶ ̶o̶f̶f̶ ̶t̶h̶e̶ ̶w̶a̶y̶ ̶y̶o̶u̶ ̶t̶h̶i̶n̶k̶ +Algorithmic trading is at the core of the Medallion Fund, with Jim Simons himself being a renowned mathematician in his earlier life. Their approach was almost purely from the numerical perspective, rather than finance. S̶o̶r̶r̶y̶ ̶p̶a̶l̶,̶ ̶t̶h̶a̶t̶ ̶e̶c̶o̶n̶ ̶d̶e̶g̶r̶e̶e̶ ̶t̶h̶a̶t̶ ̶y̶o̶u̶ ̶"̶w̶o̶r̶k̶e̶d̶ ̶h̶a̶r̶d̶"̶ ̶f̶o̶r̶ ̶i̶s̶ ̶n̶o̶t̶ ̶g̶o̶n̶n̶a̶ ̶p̶a̶y̶ ̶o̶f̶f̶ ̶t̶h̶e̶ ̶w̶a̶y̶ ̶y̶o̶u̶ ̶t̶h̶i̶n̶k̶ ### Everything, Anything -- Jim Simons have stated explicitly in public that the fund makes extensive use of publically available data to train their model. Anything from news to interest rates were taken into consideration, and much of it **before** the wide adaption of the internet, so they spent a lot of time copying data by hand. S̶o̶ ̶i̶t̶'̶s̶ ̶t̶i̶m̶e̶ ̶f̶o̶r̶ ̶y̶o̶u̶ ̶t̶o̶ ̶s̶t̶o̶p̶ ̶w̶h̶i̶n̶i̶n̶g̶ ̶a̶b̶o̶u̶t̶ ̶b̶e̶i̶n̶g̶ ̶b̶r̶o̶k̶e̶ +Jim Simons have stated explicitly in public that the fund makes extensive use of publically available data to train their model. Anything from news to interest rates were taken into consideration, and much of it **before** the wide adaption of the internet, so they spent a lot of time copying data by hand. S̶o̶ ̶i̶t̶'̶s̶ ̶t̶i̶m̶e̶ ̶f̶o̶r̶ ̶y̶o̶u̶ ̶t̶o̶ ̶s̶t̶o̶p̶ ̶w̶h̶i̶n̶i̶n̶g̶ ̶a̶b̶o̶u̶t̶ ̶b̶e̶i̶n̶g̶ ̶b̶r̶o̶k̶e̶ ### Win Small or Lose Big -- For the duration of the fund's existence, their model had an average win rate of $50.75\%$. That's right, they operated on a tiny $0.75\%$ edge over the market, which was enough to turn $\$100$ in 1982 to $\$88,190,084,543$ in 2024. Instead of trying to count cards at Blackjack, they just opened a casino. Staying consistent over millions of trades turned out to be much more advantageous than trying to win big on a few trades. +For the duration of the fund's existence, their model had an average win rate of $50.75\%$. That's right, they operated on a tiny $0.75\%$ edge over the market, which was enough to turn $\$100$ in 1982 to $\$88,190,084,543$ in 2024. Instead of trying to count cards at Blackjack, they just opened a casino. Staying consistent over millions of trades turned out to be much more advantageous than trying to win big on a few trades. ### Focus on The Right Thing -- Many people are willing to take on exceptional risks in pursue of, at least theoretically, higher possible returns, l̶i̶k̶e̶ ̶t̶h̶a̶t̶ ̶o̶n̶e̶ ̶w̶e̶e̶k̶l̶y̶ ̶F̶D̶ ̶y̶o̶u̶ ̶l̶o̶s̶t̶ ̶y̶o̶u̶r̶ ̶l̶u̶n̶c̶h̶ ̶m̶o̶n̶e̶y̶ ̶o̶n̶ ̶l̶a̶s̶t̶ ̶F̶r̶i̶d̶a̶y̶, and in some cases, risk taking is even being glorified (*not pointing any fingers* 👉🏻 [`_👀_`](https://www.reddit.com/r/wallstreetbets/)). Too often do m̶y̶s̶e̶l̶f̶ traders focus solely on potential (*not even real*) profits while completely ignoring the associated risk. The Medallion Fund, on the other hand, placed a tremendous emphasis on risk reduction. The fund consistently hedged the portfolio near perfectly, which enabled them to use margins that would be otherwise considered risky. +Many people are willing to take on exceptional risks in pursue of, at least theoretically, higher possible returns, l̶i̶k̶e̶ ̶t̶h̶a̶t̶ ̶o̶n̶e̶ ̶w̶e̶e̶k̶l̶y̶ ̶F̶D̶ ̶y̶o̶u̶ ̶l̶o̶s̶t̶ ̶y̶o̶u̶r̶ ̶l̶u̶n̶c̶h̶ ̶m̶o̶n̶e̶y̶ ̶o̶n̶ ̶l̶a̶s̶t̶ ̶F̶r̶i̶d̶a̶y̶, and in some cases, risk taking is even being glorified (*not pointing any fingers* 👉🏻 [`_👀_`](https://www.reddit.com/r/wallstreetbets/)). Too often do m̶y̶s̶e̶l̶f̶ traders focus solely on potential (*not even real*) profits while completely ignoring the associated risk. The Medallion Fund, on the other hand, placed a tremendous emphasis on risk reduction. The fund consistently hedged the portfolio near perfectly, which enabled them to use margins that would be otherwise considered risky. ## Intuitions It's unlikely that individual could effectively replicate the Medallion Fund, nor would it be the best use of time. The Medallion Fund have billions worth of assets under management, some of the tools and connections available to them are well out of reach for retail investors. +*Welp, you read faster than I can type, I feel the urge to type code instead of words, so... stay tuned* ## Arguments Against Regression Methods