[HN Gopher] Crystal Ball Trading Game
___________________________________________________________________
Crystal Ball Trading Game
Author : EvgeniyZh
Score : 225 points
Date : 2024-12-15 07:22 UTC (15 hours ago)
(HTM) web link (elmwealth.com)
(TXT) w3m dump (elmwealth.com)
| lizzas wrote:
| The trick for most people is don't trade ever until you have
| great insight. Better to SP500 it until that happens. Don't data
| mine.
|
| A good headline for trading is rare, think disasters, election
| wins maybe. Interest rate changes.
|
| Better would be insider info (not insider trading). You work
| somewhere so you sussed out their sauce but to the market it is
| yet another company. Pre or soon after IPO is best.
| ta12653421 wrote:
| in most cases, soon after IPO is a bad idea to sell, since
| insiders and first-salers
|
| its a good entry point, id say - though IPO trading in general
| is a huge risk, rather pick stable/established ticker items
| lizzas wrote:
| The point is to buy at a good price. If you know it is a good
| price at IPO then why not?
|
| I am not advocating IPO trading.
|
| I am saying join unicorn X, see of they have a good plan, if
| the company is well run etc.
|
| You can tell because you are working there. Then if it is a
| good buy buy it, otherwise don't.
|
| It is a bit like a hunter "tracking" their deer for 2 days
| rather than walking around shaking trees.
| fragmede wrote:
| Unfortunately that's not enough to guarantee success. Even
| the most well run company can still fail to find product
| market fit, just be at the wrong time, or just get screwed
| over by external factors or even other internal factors.
| Conversely, a poorly run company with a toxic culture can
| succeed despite problems a rank and file employee might
| see.
|
| If you've joined unicorn X pre-IPO, you've hopefully got a
| decent amount of pre-IPO options, at which point might I
| suggest diversifying in case the market doesn't share your
| confidence in the company.
| bostik wrote:
| The quote from Margin Call is used a lot, but the more I look
| at the world, the more I believe it's a naive take. _There are
| three ways to make a living in this business: be first, be
| smarter, or cheat._
|
| That statement has the wrong boolean operator: the implicit OR
| in place of commas should be replaced with AND operators. The
| reason is simple - if you are not willing to cheat, you are
| leaving an edge to those who do.
| curiousObject wrote:
| >if you are not willing to cheat, you are leaving an edge to
| those who do.
|
| You don't have to be the best player or to cheat on the poker
| table for +ev
|
| You have to be better than the bad players, and know when to
| fold against a better player
|
| You will make less profit than cheats. But, you won't have to
| cheat
| aziaziazi wrote:
| > You have to be better than the bad players
|
| That is easier with fair opponents. Cheating could help the
| worse poker player to win.
|
| In a field of apple tree, the best/fast/cheater climbers
| got the most apples but eventually everyone showing up can
| pick one or patient for the next season.
|
| Pocket and finance needs at the very least one looser for
| the others to win something. Others cheating and you not,
| _does_ lower your chances to win.
| ant6n wrote:
| To ,,make a living in this business", the OR will suffice.
| keithalewis wrote:
| Worked for Renaissance Technologies: https://www.ft.com/conte
| nt/8cef8c70-5d02-4762-9100-2d92d0c76...
| lmm wrote:
| They didn't exactly cheat. According to the rules as
| written, what they did was acceptable. Others who were
| slightly less blatant about it were permitted, and continue
| to be permitted, to do the same thing.
| TeaBrain wrote:
| That tax case didn't concern their alpha. It was a result
| of the ruling body deciding that they had inaccurately
| grouped short term profits with long term profits, through
| the use of basket options. The ruling in this case was
| simply the short term gains that were grouped into basket
| options weren't able to be taxed like the long term gains
| they were construing them as.
| lizzas wrote:
| Depends what you mean by cheat? Break a law? And putting
| ethics aside - risk and consequences of getting caught.
|
| Based on DOJ fines cheating is required!
|
| BUT!!
|
| Cheating is only strictly required in the trio when everyone
| is doing the same thing (olympic 100m) vs. different things
| (trading).
|
| (In the olympics the prize is honour, achievement, etc. so
| most people wont cheat for that reason.)
| jachac wrote:
| I know people that trade headlines full time that also at one
| point had a step count that averaged less than 200 steps a day.
| They do make good returns though.
| bitexploder wrote:
| I would have figured algorithmic trading bots got all the
| wins there before a human could.
| thrw42A8N wrote:
| Humans can be much smarter than any algo trading bots. The
| algorithms for trading are really primitive price action
| stuff - not fundamental information about the business,
| products, customers...
| JustAndy wrote:
| Wouldn't an LLM be able to do that kind of analysis?
| thrw42A8N wrote:
| A LLM all by itself? No, I really don't think so. From my
| personal trading history - I knew to invest into AMD when
| it was at $5 because I tried their products and am
| intimately familiar with computers. LLM won't be able to
| do that for a long time. But - it helps me.
| Workaccount2 wrote:
| The fastest way to see news for a binary event is the just
| watch the stock price of the underlying.
|
| For something like GDP numbers, the price moves within
| milliseconds of the print, before your browser can even
| refresh and minutes before the numbers even show up on
| twitter.
| lizzas wrote:
| I am going to take advantage of this arbitrage
| opportunity to start a newspaper :)
| jachac wrote:
| Relatively defined events yes, i.e probably wouldn't try to
| click through FOMC (is number better/worse than FedWatch)
| but take something like BTC ETF getting approval:
|
| - you aren't sure where the announcement will come from
| first, i.e will it leak via journalist
|
| - there will be plenty of false announcements
|
| - the official SEC twitter account got hacked and posted it
| was approved (Phone number taken over, no 2FA enabled
| lolol)
|
| - there will be volatility around fake announcements as
| others are running bots
|
| - LLMs interpretation of "BTC ETF approved" vs "With BTC
| ETF approval" can cause you to start eating lot of
| transaction costs
|
| You can still (presently...) come out on top as a bag of
| meat. Is it worth the hours and cortisol vs half decent
| tech job? going to say entirely dependent on the scorecard
| afterwards and if you value doing something with actual
| purpose.
| kjellsbells wrote:
| Seth Klarman, in _Margin of Safety_ , is refreshingly clear on
| this. The aim is always to buy something worth a dollar, for
| less than a dollar. You, not the market, must determine what
| the asset is worth. That generally requires a significant
| amount of investigation.
|
| If you are not up for that, Klarman explicitly notes that index
| investing will be fine, but not spectacular, and in particular
| the index will trade in stocks for no good (investment) reason
| but simply because they have to keep the index balanced.
|
| Trading on news and events is essentially gambling, although
| you can use other people's reaction to news to time investments
| _so long as_ you 've already decided to invest and were simply
| waiting for the price to meet your criteria to make the trade.
| toomuchtodo wrote:
| "The deal is made on the buy" with most asset classes.
| tithe wrote:
| > Seth Klarman, in _Margin of Safety_...
|
| May I ask where / how you came about your copy? I've seen it
| mentioned several times but have found it difficult to
| locate. (For example, the used copy on Amazon is selling for
| $2000!)
| jzebedee wrote:
| Anna's Archive looks like it has ebook copies in several
| languages.
| whatshisface wrote:
| Keeping the index balanced is a good reason to trade stocks.
| EVa5I7bHFq9mnYK wrote:
| Followed your advice. Invested in SP500 every slide of the
| game, irrespective of the news (with 10x leverage).
|
| Lost 52%.
| wat10000 wrote:
| The S&P 500 is down less than 1% below its all-time high.
| It's mathematically impossible to lose 52% following that
| advice.
|
| I think "with 10% leverage" deserves a lot more than a
| parenthetical here.
| EVa5I7bHFq9mnYK wrote:
| Try it yourself, the game is not randomized. You should
| receive exactly the same result.
| TeaBrain wrote:
| If fully invested in just the S&P 500 with 10x leverage, it
| seems less mathematically possible to have lost just 52%
| unless it was an very short time horizon. If fully
| invested, A 5.2% decrease in the value of the S&P 500, with
| 10x leverage, would lead to a 52% fund draw down, given no
| margin call during the 5.2% S&P draw down. In most years,
| the S&P experiences at least one short-term draw down off
| the years peak of at least 10%, which would lead to a
| complete loss of capital, given that they hadn't already
| experienced a forced liquidation due to a margin call on
| the previously 10x levered assets, which would now be
| levered higher given a loss in the capital base.
| ac29 wrote:
| If the days selected were purely random, investing in SP500
| would be wise (though not with 10x leverage).
|
| In this experiment only 1/3 of days were random, with another
| third in employment report days and the last third in fed
| announcement days.
|
| When I did this with -10x SP500 every day the result was a
| +36% return, which is surely not what you would expect if the
| trading days were purely random.
| Rexxar wrote:
| 10x leverage is just crazy for individual stock investment.
| The lesson you should learn from this is not "don't invest
| SP500" but "don't use 10x leverage".
| lizzas wrote:
| Get a better broker :-) my SP50 (yes 50, dont ask!) index is
| doing alwite.
| immibis wrote:
| what you describe as "not insider trading" is insider trading
| fsckboy wrote:
| he's pointing out the technical definitions of the terms;
| you're insisting on the imprecise/wrong popular usage.
|
| "insider trading", when insiders trade, say the CEO sells his
| stock bonus, is regulated (has to announce in advance, follow
| a plan) but completely legal. Some investors track how much
| insiders are trading in order to judge confidence in a stock.
|
| "trading on inside information" (whether you are an insider
| or not) is not legal.
| lizzas wrote:
| I may have been ambiguous but I am saying if you work
| somewhere (pre IPO) and you can see their killing it, on
| fire, and are seeing a truth other companies can't see then
| you know (perhaps doing some more research on public info)
| that it is a good buy.
|
| Also for private companies you often get an all hands with
| financials, sales info, strategy etc.
|
| The bet here is: this company isn't just lucky they have a
| killer system. You would get shares privately if possible.
| Even at IPO at a higher price, knowing they are kickass you
| can buy then.
| yieldcrv wrote:
| The article goes into that when seasoned traders were given the
| same test and had 60-130% gains, compare to the single digit
| gains and losses of the students
|
| The seasoned traders:
|
| > They did not bet at all on about 1/3 of the trading
| opportunities
|
| This has always stood out to me about these trading challenges.
| They make it seem like you must always be invested and a lot of
| lay people fall for that.
| mettamage wrote:
| Wait, so in the challenge, you don't get to know what date it is?
| It's an odd challenge as I'm playing it right now and I don't
| know the zeitgeist of the time.
|
| I'm currently looking at a front page and am just wondering: is
| it 2008?
|
| Purely having knowledge from a day in advance without any other
| context, yea that's hard. IRL, we also have context.
| sgerenser wrote:
| If you knew the exact date, it would make it too easy to
| remember some big stock drop that happened on a specific date.
| Although there were enough clues in many of them to narrow it
| down to a week or two.
| InkCanon wrote:
| It's an interesting article but if you had five extremely
| experienced traders and you used historical events (and supplying
| them with enormous memory prompting by giving them headlines from
| financially important events like CPI, interest rate releases),
| chances are they can remember a huge amount of the results.
| alexmolas wrote:
| Exactly! They're evaluating the model using the training data
| gklitz wrote:
| The study is saying people couldn't turn the information into a
| reliable advantage and your arguing why information leakage
| might explain why there would be a reliable advantage.
| jjallen wrote:
| Did you read the article?
|
| It says that the experienced traders did make money. The OP
| above is saying that one possible explanation is that the
| experienced traders simply remembered what happened. As a
| professional trader myself this seems very reasonable
| bloomingkales wrote:
| Well, I mean an LLM can't make any decisions unless it
| pulls things into context (into memory). So yeah, it's true
| for machines too. You need to remember to even be on the
| right track.
| bluGill wrote:
| 'Buy the rumor sell the news'. I'd expect most people to
| not know that advice but pros would. that is pros would
| know that before most major announcements people had alread
| guessed based on other indicators and so the announcement
| is priced in already.
|
| if you could find an alien civialization with a stock
| market I'd expect pros to do similiarly well just based on
| that.
|
| amature traders in the real world tend to be more in tune
| to rumors and thus more likely to get it right since they
| had already traded by this sime. (or so I would guess)
| nextworddev wrote:
| What you need is a crystal ball for price (which Citadel etc
| has), not crystal ball for other information.
| mghfreud wrote:
| How do Citadel have a crystal ball for price?
| teractiveodular wrote:
| High-frequency trading, which lets them frontrun orders.
| mghfreud wrote:
| How do you fontrun orders? You can only take action after
| you see the order. Am I missing anything?
| Yiin wrote:
| latency arbitrage is a thing
| goblinux wrote:
| Michael Lewis wrote a book called Flashboys all about it.
| If your network speed and processing power are faster
| than the competitors, then you can move faster than them
| on any trade. Really interesting stuff
| loeg wrote:
| Flash Boys is essentially fiction. You might also enjoy
| "Flash Boys: Not So Fast," which attempts to debunk it.
| hckrnrd wrote:
| Let's imagine a bustling farmer's market where market
| makers are savvy fruit stand owners, and regular traders
| are shoppers. Here's how the market makers might "front
| run" orders to make arbitrage profits:
|
| ## The Fruit Stand Scenario
|
| Imagine you're at a large farmer's market with numerous
| fruit stands. You're looking to buy a crate of apples,
| and you ask a friendly fruit stand owner, Citadel, for
| the price.
|
| *The Setup:* - You want to buy a crate of apples -
| Citadel's stand is selling apples for $50 per crate -
| There's another stand nearby selling for $48, but it's
| not immediately visible
|
| *The Front-Running Process:*
|
| 1. *Information Advantage:* Citadel, being a regular at
| the market, knows about the nearby stand selling apples
| for $48.
|
| 2. *Customer's Intent:* When you ask Citadel for the
| price, they realizes you're likely to buy a crate.
|
| 3. *Quick Action:* Before quoting you a price, Citadel
| quickly sends his assistant to buy a crate from the $48
| stand.
|
| 4. *Price Quote:* Citadel then tells you his price is $50
| per crate, which you accept.
|
| 5. *Fulfillment:* Citadel's assistant returns with the
| $48 crate, which Citadel then sells to you for $50.
|
| 6. *Profit:* Citadel pockets the $2 difference as profit,
| without ever risking his own inventory.
|
| ## The Market Making Parallel
|
| In the financial markets, this process happens at
| lightning speed:
|
| 1. Market makers see incoming orders before they're fully
| processed.
|
| 2. They quickly buy or sell ahead of large orders on
| other exchanges.
|
| 3. They then fulfill the original order at a slightly
| worse price.
|
| 4. The profit comes from the price difference between
| exchanges.
|
| This practice, while controversial, is often justified by
| market makers as providing liquidity and tighter spreads.
| However, it can be seen as unfair to traders who may not
| get the best possible price for their orders.
| nkurz wrote:
| Nice write up! Can you flesh out your example a little
| bit with more specifics about how the stock market
| version works? In particular, are the front-runners
| actually taking a risk by buying before they have a
| committed order? Or are they committing to sell before
| they buy from the cheaper source on the assumption it
| will still be available? And is selling order flow
| something different, or the same thing here?
| hckrnrd wrote:
| Selling order flow is a related but distinct practice:
|
| - Order Flow Sales: This involves brokers selling
| information about their customers' orders to interested
| parties.
|
| - Potential for Front-Running: While not inherently
| front-running, selling order flow can enable it if the
| buyers use this information to trade ahead of customer
| orders.
|
| - Payment for Order Flow: This practice allows some
| brokers to offer commission-free trades, as they make
| money by routing orders to specific market makers.
|
| Front-runners do take on some risk, but it's typically
| minimal:
|
| - Speed: Modern front-running often occurs using high-
| frequency trading algorithms, minimizing the time between
| the front-runner's trade and the large order execution.
|
| - Committed Orders: Front-runners act on knowledge of
| committed orders, not mere possibilities. They have an
| informational advantage.
| kzrdude wrote:
| Why would it be legal for market makers to use order info
| like that?
| TacticalCoder wrote:
| > How do you fontrun orders? You can only take action
| after you see the order.
|
| PFOF:
|
| https://en.wikipedia.org/wiki/Payment_for_order_flow
| n2d4 wrote:
| PFOF does not frontrun -- it wouldn't even make sense to
| frontrun. Retail orders tend to be bad; it makes no sense
| to frontrun a bad order, especially if you're the market
| maker who's fulfilling it too.
| lifeisstillgood wrote:
| So if I understand it
|
| First you must be right.
|
| Second you must be right while others are wrong (or no-one will
| take the other side).
|
| Third you must _believe_ enough to bet big.
|
| Fourth you must bet big.
|
| Fifth, you must have been right at step one.
| pavlov wrote:
| And if you get lucky this way enough times in a row, you'll
| start believing yourself a genius who deserved the
| extraordinary success. Journalists will call you up to hear
| your excitingly contrarian views on topics you know nothing
| about.
|
| As you grow older and observe the world from your suburban
| mansion, you grow increasingly irate that people didn't listen
| to you. You made your own fortune, but so many people just ask
| for handouts nowadays. Time to get involved. If you donate
| enough money to the other rich guy who is running for office,
| he'll make you ambassador to Italy, at least...
| dennis_jeeves2 wrote:
| >As you grow older and observe the world from your suburban
| mansion, you grow increasingly irate that people didn't
| listen to you.
|
| I wonder why these successful people don't pick people and
| pay them to do a strategy. It can be a win-win. I know why
| they don't - deep down they know that luck was a major
| factor.
|
| ( I'm aware of one such situation - I think it was called
| called the turtle trading or something, that was done in the
| 80s)
| TimMurnaghan wrote:
| > Fourth you must bet big.
|
| No. You must bet right - and it depends on how right you are.
| Look up the Kelly criterion. Bet 1 - 2*probablity of losing of
| your current pot - will maximize expected return (but is a bit
| volatile for some tastes)
| Etheryte wrote:
| It is pretty well agreed upon that the Kelly criterion
| strongly overestimates bet sizes for continuous bets where
| accurate probabilities are hard to determine, like the stock
| market. It has given rise to many variations such as Half-
| Kelly, Kelly minus constant, etc, which is a pretty good tell
| that it's an inaccurate approximation. Using Kelly to invest
| in the stock market is roughly like using half the Black-
| Scholes formula to invest in options. You'll get good results
| when the market agrees with your direction, but spectacular
| failures when it doesn't.
| ben_w wrote:
| But also never forget:
|
| "Markets can remain irrational longer than you can remain
| solvent" - John Maynard Keynes
| bluGill wrote:
| that quote has been attributed to many over the years. I can
| find an origional surce.
| ac29 wrote:
| Yes, the missing point is that you need to have the timing
| right as well.
|
| Even if you are correct about the direction and magnitude of
| price movement, if you are wrong about how long it will take
| you can lose money. This is true for both short and long
| positions.
| beyondCritics wrote:
| >Fourth you must bet big
|
| Big blunder. Killing every profitable trade. You have to
| account for the fact that loosing hurts comparatively more than
| winning. Keyword is "log optimal".
| dennis_jeeves2 wrote:
| Sound similar to how one needs to succeed as an entrepreneur:
|
| First you have to be smart, an IQ of less than 100 won't do
|
| Second you have to pick the right product/service.
|
| Third you have to persevere long enough. One cannot give up too
| soon, But persevering too much would be a case of sunken case
| fallacy.
|
| Forth you have to time your product/service. Too early or too
| late, it will affect your parents.
|
| etc...
| teo_zero wrote:
| > So if I understand it
|
| This is not what TFA says at all. Especially this one:
|
| > Fourth you must bet big.
|
| is explicitly listed as a common mistake all the involved
| students exhibited.
| _benj wrote:
| This is a fun read!
|
| I think something interesting about the news and its supposedly
| predictive power is that the market already discount the news.
|
| If you look at the daily and weekly charts for SP500, it has been
| on a bill run, for a bunch of unknowable factors but I suspect
| one of them is the expected rate cut from the fed. Now, if the
| cut was, for example 50 bsp, instead of 25 that would be news
| indeed, but the again, last rate cut the prices jump sharply
| exactly at 1 PM EST, meaning that computers, not humans, read the
| report and placed hundreds of orders in milliseconds after the
| report was released.
|
| IMHO knowing the future 1 day ahead is not enough because in that
| timeframe the market has already discounted the news.
| cabby wrote:
| The market isn't some kind of oracle. It's driven by sentiment.
|
| And the bond market controls rates.
| ac29 wrote:
| The bond market controls rates, but the fed sets the floor.
|
| For example, if you believe we would had decades of a near
| zero federal funds rate, you might be willing to accept a 2%
| yield on a 30 year bond. But if you thought the long term
| federal funds rate was going to be 2%, you might want 4% or
| more on the long bond.
| dist-epoch wrote:
| I saw many times something like this:
|
| 1. rate cut
|
| 2. S&P rises, financial press writes "market rise because of
| the rate cut"
|
| 3. later during the same day, S&P reverses and drops below
| price when rate cut was announced, financial press writes new
| article "market drops because of the rate cut"
|
| rinse & repeat. they literally are reacting and correlating
| price movement with whatever big news happened.
| throw0101b wrote:
| For anyone worried about markets being at all-time highs, and
| have cash sitting on the side lines waiting for a dip to jump in,
| it's better that you enter the market rather than waiting--and
| this is true even if you had a crystal ball and knew when the dip
| would occur:
|
| * https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-co...
| sgerenser wrote:
| Well that was kinda fun. Turned $1M into $4.5M, mostly just from
| a few big bets then playing it safe otherwise. Of course in real
| life I'm 100% index funds since unfortunately I don't get
| tomorrows news.
| brcmthrowaway wrote:
| Which index funds?
| bdangubic wrote:
| Stocks:
|
| VBTLX VFIDX VFSUX VTI VXUS
|
| Bonds: BND BNDX
|
| Buy and forget if you just want to play it safe
| plank wrote:
| Played the game (from 1M to 2.3M, a batting (?) average of
| 63.64%). Played big three times: one a big loss, twice a big win.
| Takeaway from the game: feels a bit like lottery (although I was
| relatively confident thrice, I was wrong one of those).
| throw4321 wrote:
| The point of the market is not for you to do better than anyone
| else. The point is to price things right so that the market as a
| whole makes money. By picking stocks, you're either a gambling
| monkey or a more conservative gambling monkey.
| dheera wrote:
| True, though right now, the markets are set up such that anyone
| with positive net worth and consistent income can _easily_ do
| vastly better than anyone with negative net worth. The more
| positive your net worth, the more leverage and risk you can
| safely afford, and you get rewarded for that.
|
| The rich can afford the risks associated with leveraged crypto
| and AI stocks, the poor can only afford VOO or (worse) Treasury
| bonds because their life would be on the line if they lost
| money.
|
| If you actually have money to throw away, you'd be an idiot to
| not have a pile of BTC right now. If you don't have money to
| throw away, BTC is dangerous as fuck.
|
| The markets are designed to continually widen the gap between
| rich and poor.
| Terr_ wrote:
| There are a variety of simple market simulations one can come
| up with where--despite every participant being equally
| skilled--the final outcome is always one rich guy and
| everyone else poor.
|
| When you combine some of these simple models with an
| adjustable "redistributed back by tax" function, you get
| results which resemble the various countries of the world.
|
| http://www.scientificamerican.com/article/is-inequality-
| inev...
| throw4321 wrote:
| > you'd be an idiot to not have a pile of BTC right now
|
| I do agree with your overall take that there is a recent
| trend towards de-democratization of investment opportunities.
| The invention of the stock market was a huge deal because it
| massively moved the needle towards democratization.
|
| BTC ain't it, however. Good luck proving the hypothesis that
| BTC is not tulips.
|
| Personally, I see two major outcome sets. Either Russia
| "conquers the planet" or it doesn't. If it does, BTC is no
| longer any use to Russian-aligned oligarchs to bypass
| sanctions. If it doesn't, the West will eventually wisen up
| and hamper BTC transactions to the point that the
| alternatives win out.
|
| Those are two likely crashpoints. There are 10000 possible
| others. Musical chairs always ends, it's just a matter of
| when.
| eschneider wrote:
| A couple of things stand right out here: a) There's almost no
| time horizon here, so it's basically day trading. It's not enough
| to know what happens, everyone else needs to "do the right thing"
| in a short time horizon. As the article says, that doesn't happen
| a lot. b) WSJ isn't as good a new source as it used to be, which
| makes the game harder. Though occasionally, something big will
| happen and a one day lookback would be helpful. (Say, shorting
| airline stocks before 9/11...)
| petesergeant wrote:
| > it's basically day trading
|
| In my understanding day trading is mostly about looking for
| pretty patterns in lines and ascribing meaning to them, as well
| as attempting to trade on public information that HFTs and
| 3,000 well-paid and professional traders at GS have already
| priced in
| filoleg wrote:
| What you are talking about (looking for pretty patterns in
| lines and ascribing meaning to them) isn't day trading, it is
| called technical analysis. I mostly agree with your take on
| its usefulness though, there is a reason it is getting memed
| as astrology for finance bros.
| petesergeant wrote:
| I understand they're different topics, but my understanding
| is also that amateur day traders go wild for technical
| analysis over most other signals, so in practice much day
| trading consists of it...
| ac29 wrote:
| 9/11 is a great example here because even if you knew it would
| happen a day in advance, trading on that would gain you nothing
| in this experiment - the markets didnt open that day.
| dheera wrote:
| Markets in other parts of the world did, and you could have
| traded those airline stocks.
|
| That said, COVID would have been a better example for airline
| and hotel stocks.
|
| [Also IMO, PUT options are safer than shorts. Do your own
| research.]
| ghaff wrote:
| One of the problems is that you mostly need money to make
| money.
|
| There's an SF book called Replay that imagines a guy
| reliving his life from his fifties or so to his teens or
| so. One of the clever plot points (not really a spoiler) is
| that he just happens to remember a highly improbable sports
| result around the time of his replay which, with the help
| of some friends and family loans, makes him very wealthy.
| The book would have been a lot less interesting if the main
| characterer was just starting out as a poor college student
| over and over again.
|
| Sure, I could have made money in dot-com/bomb (and maybe
| bitcoin) but I still would have needed a fair bit of
| capital to have made life-altering gains.
|
| To the point of the article, predicting how most specific
| company or economic outcomes will affect stock prices is
| pretty much a sucker bet. Perhaps excluding some specific
| events like 9/11--but even that effect wasn't _that_ great.
| didgetmaster wrote:
| Bitcoin is not a good example for your argument. The
| first bitcoin transaction for a physical good was in 2010
| where 10K of bitcoin was used to buy a couple pizzas.
|
| Even the poorest American could probably have scraped
| enough together to own that much bitcoin back then. If
| they held onto it until now, they would be a billionaire!
| ghaff wrote:
| If you really knew Bitcoin was going to be big with
| certainty/high probability, you could have mined it or
| done a dark alley transaction early on. Assuming you
| didn't get scammed out of or simply lost your wallet at
| some point, I agree, it's an exception where you could
| have made a fortune from basically nothing. (Though not
| in a day which is the actual experiment in question.)
|
| The more interesting experiment to me would be if you
| gave me a week's worth (say) of the WSJ from ten years
| hence, what could I do with it?
| didgetmaster wrote:
| I was replying to the comment that stated that you need a
| significant amount of capital in order to make life
| altering gains, even if you had a crystal ball.
|
| I was arguing that with the right information, you could
| turn a few bucks into a massive fortune (bitcoin being a
| single example).
| ghaff wrote:
| Rags to Riches and all that given a sufficiently long
| time horizon and the right drive and savvy, and luck. I
| do think there are relatively few cases where you can
| just drop someone in the right place at the right time
| with a few dollars and expect them to succeed, especially
| in the short-term.
| didgetmaster wrote:
| Of course MOST rags to riches stories are accumulated
| over decades of hard work with some luck sprinkled in;
| but almost every day you hear of a few turning a few
| bucks into a fortune overnight. Lottery winners, meme
| stock traders, and sports betting are just a few
| examples.
|
| Everyone knows it can happen. That is why get-rich-quick
| schemes work.
| ghaff wrote:
| Sure, if I know the Powerball winner or some weird meme
| stock spike a day in advance, but that's getting a bit
| off the topic of seeing the front page of a major news
| source a day earlier for the most part. (And even the
| meme stock takes money to really take advantage of)
| Terr_ wrote:
| https://xkcd.com/1827/
| wbl wrote:
| Buying a number of puts on airlines and calls on defense
| contractors would have worked.
| Reubend wrote:
| > WSJ isn't as good a new source as it used to be, which makes
| the game harder.
|
| You don't think the front page of the WSJ would contain a
| decent summary of the day's business news?
| pclmulqdq wrote:
| It does not. It's a sort of ideological rag at this point for
| the right wing of Wall Street (see the NYT for the left wing
| rag). Give them Bloomberg or the AP a day ahead and they will
| make much better bets.
|
| I think they will still trade with too much leverage and poor
| asset allocation, though.
| dekhn wrote:
| The NY Times isn't a left wing rag (I'm excluding the
| Opinion section, which is a very mixed bag). It's the
| mouthpiece of the establishment.
| pclmulqdq wrote:
| It's the ideological rag for the left wing _of Wall
| Street_ which is very different than the left wing in
| general. Both papers are "establishment."
| Etheryte wrote:
| I wouldn't really say the WSJ is a good summary. If I look at
| the front page today, most of it is topical, but generic and
| not really actionable information in any way:
|
| - The Drugs Young Bankers Use to Get Through the Day--and
| Night
|
| - CEOs Want Trump to Change Course on Tariffs. He Isn't
| Budging.
|
| - Untangling America's Love-Hate Relationship With Corporate
| Power
|
| Etc, it doesn't really tell you much anything about what's
| going on in the market. Yahoo Finance on the other hand is a
| great overview, the upcoming fed meeting is front and center,
| there's a market overview on the right, highlights of
| specific big movers, etc.
| alwa wrote:
| To be fair it's also Sunday. Silly season for newspapers
| generally, the business newspaper in particular.
| TacticalCoder wrote:
| > You don't think the front page of the WSJ would contain a
| decent summary of the day's business news?
|
| Not anymore?
|
| Take front page today, first "Opinion" title: _" The Trans
| Double-Mastectomy Lawsuit"_ (not sure what their stance is
| here: they went full woke but they're toning wokism down now
| that Trump won). First big headline: _" The drugs young
| bankers use to get through the day"_. _" America's love/hate
| relationship with corporate power"_.
|
| _" How an Ivy League Police Commissioner Hunted an Ivy
| League Murder Suspect"_
|
| Facepalm. I mean, sure, if I was reading The Guardian in the
| UK or something.
|
| But how the _fuck_ has anything of that to do with business
| and /or finance?
|
| That's what I see first, front page.
|
| Funnily enough the first title related to business or finance
| is one HN won't like: _" These 5 Wall Street Titans Thought
| Bitcoin Was a Fad. Here's What They Say Now"_.
|
| People are making fun of the WJS, calling it the "Woke Street
| Journal". They've been more interested in pushing the ESG
| ideology (the one were banks in the US [and the EU] are
| secretly assigning scores to every US individuals depending
| on how "ESG friendly" they are), including solar (not that
| there's everything wrong with solar) and most of all running
| an anti-Trump / anti-Musk campaign, being sure Harris would
| won, then running actual news about Wall Street and
| businesses.
|
| They just lost the plot.
| spondylosaurus wrote:
| People think _the WSJ_ is left-wing now? Good lord. The
| Overton window is in pieces.
| tomatotomato37 wrote:
| WSJ is left-wing in the sense a bunch of corporate types
| looked at the Occupy Wall Street movement and thought
| "Huh, it seems certain aspects of their ideology hinder
| their ability to organize labor effectively... I wonder
| what would happen if we amplify those aspects above all
| else."
| foundart wrote:
| When I was a subscriber (about 7 years ago) it seemed the
| news was left-leaning and the opinion section was heavily
| right-leaning.
| mathgeek wrote:
| Interesting observation. I've mostly seen opinions that
| is has moved to moderately conservative since Murdoch
| acquired it. E.g. https://www.nytimes.com/2009/12/14/busi
| ness/media/14carr.htm...
| carlob wrote:
| reality tends to have a left-leaning bias
| fragmede wrote:
| too bad it doesn't vote
| HeatrayEnjoyer wrote:
| Hard to take the phrase "full woke" seriously...
| poulsbohemian wrote:
| The WSJ is such a shallow shell of its former self that no, I
| don't trust it as far as I can throw a paper airplane made
| out of it. Somewhere along the line (and I have my hypothesis
| as many do...) our news sources stopped being objective,
| stopped seeking truth, stopped being sourced for bringing
| real information to the consuming public, and instead became
| a kind of echo chamber for dogmatic ideology of one kind or
| another. I have no idea what to read any more, because it's
| devolved into sick "entertainment" rather than insightful
| reporting. Even my beloved NPR seems on the brink of falling
| into this as they seek to kowtow, presumably to save their
| funding.
| kurthr wrote:
| I'd have to agree. It doesn't matter WSJ, NYT, WaPo, LAT,
| Trib, all garbage. When I started to see grammar mistakes
| and typos in the NYT, I knew it was over. They were
| optimizing for clicks not correctness. The infotainment
| that started on TV and the destruction of revenue by
| aggregation has created an environment where largescale
| news as it was is not profitable (enough), but clickbait
| is. There may be individual journalists who care, but not a
| single senior editor that does. We have achieved post truth
| media. The news cycle is literally about UFOs.
|
| edit: I will say that's a profit opportunity both for those
| who can spread fake meme news and for those who can bother
| to see through it, but for the vast middle it is idocracy.
| FredPret wrote:
| All you can do now is to go to the source data.
|
| If you want long term trend data, it's easy to get good
| data for free. It'll be boring and most trends will be
| positive (thank our lucky stars we live in the
| technological era). Unless you have a real passion, you'll
| most likely not visit one of these sources twice (World
| Bank, IMF, FRED in the USA, tradingeconomics.com, the SEC)
|
| If you want short term, real-time data, you'll likely have
| to pay for it. The downside is that there's a deluge of
| data and almost all of it is useless (unless you care about
| up-to-the-minute prices for beans in China or whatever).
|
| The job of journalists is to mine all this info for
| something sensational or, failing that, spin some short
| term data bump into a big story.
|
| Way back in the 1940's, there was so little data out there
| that the WSJ could simply print all the current market
| events and call it a newspaper. There was so little
| entertainment out there, that people bought and read that
| paper!
|
| Information dissemination remains an unsolved problem.
| danenania wrote:
| Yep, in simple terms they all became tabloids. They do
| still hire a few real journalists to keep up appearances,
| but sensationalism is what sells so that's what gets the
| most real estate.
| ghaff wrote:
| I'm unconvinced that, as you say, reacting to specific short-
| term events is especially interesting. There may be specific
| cases where OMG, the stock market is going to fall, is fairly
| predictable. But the more interesting trends are decade-long+.
| eschneider wrote:
| This. And even knowing the long-term trend isn't a guarantee
| that you'll make money. Look at the late 90s: knowing the
| internet was going to be a huge thing was obvious, but it
| didn't necessarily translate to knowing who the winners and
| losers would be long term. You have to both understand the
| long-term trends AND be smart about the here-and-now.
| ghaff wrote:
| You could know the market was going to go silly with stocks
| like Yahoo in the late 90s. But you also had to pick the
| right time to dump everything.
| danenania wrote:
| You could have also "known" that bitcoin was a massive
| bubble and going to zero back when that was a popular
| sentiment.
|
| It's not just timing the bubble that is tricky. Sometimes
| the "obvious" bubble never ends up popping.
| pedalpete wrote:
| You may be ignoring that at the time of the bubble, many
| investors, and even regular people, though the internet
| wasn't that big a deal. Sure email meant we wouldn't send
| snail mail anymore, but the majority of people were still
| in the "it isn't safe to use my credit card online" world.
| bee_rider wrote:
| I think in the blog post they say they have pulled from
| Washington Post articles randomly over the last 15 years. When
| do you think the paper went bad? You can also skip days. If I
| understand the blog post correctly, maybe you could check your
| hunch (b) by playing the game and skipping any days after your
| "WaPo went bad" date.
| stavros wrote:
| I tried this game multiple times, but it kept bugging: I made 2.3
| M after a few trades, but then the "trade" button just stopped
| working. I'm on Vivaldi, so maybe that affected something.
| BurningFrog wrote:
| It should be fairly simple to feed an AI all WSJ
| headlines/articles and day-to-day stock values for the last 20
| years, and have it recommend trades each morning.
|
| I expect it would does better than average.
|
| I also expect similar thing are already running.
| cj wrote:
| > I expect it would does better than average.
|
| > I also expect similar thing are already running.
|
| Only 1 of these 2 statements can be true.
| c22 wrote:
| But why bother when it's just as simple to feed an AI the last
| few decades of rocket research and put SpaceX out of business?
| sahmeepee wrote:
| I did a similar proctored digital coin toss type experiment at
| uni back in the dark ages.
|
| In the proctored experiment the best _rate_ of pay was achieved
| by those who just skipped trading for each of the 15 days and
| left after 2 minutes with $50 in their back pocket.
|
| I would like to see the payout distribution graph with random
| trades for comparison against the students.
| the__alchemist wrote:
| The title and opening conclusions are misleading, and the true
| conclusion is straightforward: *Financial news is mostly noise.*
| You would need a good filter to make use of it.
|
| A _crystal ball_ showing slightly+ reliable price data, at a
| reasonable interval in the future. (E.g, minutes+) would make a
| competent person astoundingly wealthy.
| motohagiography wrote:
| I don't trade so my comment is low value speculation, but it's
| more about what a crystal ball is.
|
| revealing the future doesn't give free insight into the dynamics
| that produced it, and you don't need to know the future to
| identify where a dynamic among factors or parties may be in play.
| paulpauper wrote:
| Yea the study is not that useful or is misleading considering
| it defines a crystal ball to mean something which does not
| actually provide clairvoyance. It's like, yeah, you can see the
| future but minus the actual pertinent information. Then it's
| not a crystal ball.
| currymj wrote:
| a real world version of this experiment: from time to time there
| is a hacking case where a criminal group steals earnings reports
| from companies before they are made public. some of these
| conspiracies have been quite profitable, but i believe all of
| them had at least a few trades go against them.
|
| a more extreme "crystal ball" were certain life insurance
| policies written by the French insurance company Aviva. They
| allowed customers to purchase shares today at last week's prices.
| This sounds incredibly stupid, but that's what the contract said,
| although the insurance company would like to get out of it. The
| legal battles have dragged on for a couple decades at this point.
| bilsbie wrote:
| Could this mostly be due to a "sell on the news" phenomenon?
|
| Stocks go up on rumors but don't do much or go down a little when
| something is confirmed.
| Workaccount2 wrote:
| One thing I don't see anyone mentioning, is that there is a big
| consensus factor at play too, which adds a bunch of randomness to
| news outcomes.
|
| Take interest rates for example: Lowering rates means that money
| will be cheaper (good!) but that the fed see's slower economic
| times ahead(bad!). So now you need to put the decision on
| context, which adds a whole host of assumptions and estimates.
| Both sides have a strong logical argument for stocks moving up or
| down.
|
| So you end up with traders voting with their dollars once the
| news drops, and it is not (practically) possible to know which
| group has more firing power going into the print.
|
| It's also not uncommon for a stock to tank the moment the news
| drops, and then skyrocket seconds later (or the inverse).
| Competing theories and the winner is whoever has more money to
| move the stock.
| fullsend wrote:
| "Perhaps this overuse of leverage is explained by" it's explained
| by it being a silly little toy game. This experiment goes way
| differently if you use the one page business section of The
| Economist. WSJ front page is going to be literal clickbait.
| awinter-py wrote:
| either we hugged it to death or the future doesn't work in
| firefox
| creer wrote:
| What in the world?!
|
| > The average payout was just $51.62 (a gain of just 3.2%), which
| is statistically indistinguishable from breaking even.
|
| Yeah, it's not statistically significant because (1) the
| experiment was stupid small: "118 young adults" And (2) the
| participants didn't have to care: "each participant $50". With
| (3) no choice of instruments "trading the S&P 500 stock market
| index and a 30-year US Treasury bond futures contract". And (4)
| randomly chosen 15 days.
|
| Still furthermore the experiment was made stupid tough: (5) the
| participants are students and (6) had to allocate bets for 15
| events and up to 50 times leverage - and that is very difficult
| to do equally for newcomers and established investors who have
| not deliberately worked on the issue of bet size and allocation.
| (See The missing billionaires - A guide to better financial
| decisions, Victor Haghani and James White, 2023 - excellent book
| on that topic)
|
| What in the world?? That's a lot of trouble to go to for one
| cheap marketing headline. With zero applicability to the real
| world (except as cheap marketing headline and also: studying bet
| size / allocation is good advice for would be investor.)
|
| Indeed, they themselves recognize the thing in their conclusion:
| more thoughtful and experienced people did great - although
| perhaps still not significant because they managed to ask only 5
| of them...
| orobinson wrote:
| Read the post. It said that people trade in the wrong direction
| the majority of the time. So played the game with the strategy
| that I'd go 50x leverage long or short in the opposite direction
| to my initial hunch upon reading the headlines.
|
| Ended up with a 1000% return. Just need a time machine now.
| steveBK123 wrote:
| The reason this is the case is that in most cases, simply knowing
| the direction of some news event is not enough to predict the
| reaction in a stock. If only it was so simple, linear and one
| dimensional.
|
| Generally the reaction of a stock has about a dozen inputs
| ranging from other market participants expectations, macro/rates,
| broader market, politics, etc.
|
| On other participants expectations alone..
|
| You might see a news story like "Apple ships record number of
| iPads" and go wow great, I should have bought Apple yesterday.
| But you don't know what other participants expected in terms of
| number of iPads shipped.
|
| Further, you don't know what metric of Apples earnings report
| that other participants were tracking most closely. What if it
| was gross margin on iPads sold, and while the units sold went
| up.. it was all in a newer lower end priced model that dragged
| down overall margin in the segment?
|
| Further what other news did you miss - what if in some parallel
| dimension of this game, there was a news story on page 5 about
| MSFT/GOOG shipping a truly competent iPad competitor.
|
| Or what if what other investors respond to is some aside comment
| made on the earnings call regarding an expected slowdown in
| services revenue?
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