> Our main result, which is independent of the market considered, is that standard
trading strategies and their algorithms, based on the past history of the time series, although have occa-
sionally the chance to be successful inside small temporal windows, on a large temporal scale perform on
average not better than the purely random strategy, which, on the other hand, is also much less volatile.
In this respect, for the individual trader, a purely random strategy represents a costless alternative to
expensive professional financial consulting, being at the same time also much less risky, if compared to
the other trading strategies.
The reference to "expensive professional consulting" doesn't make sense to me, because that wasn't a studied strategy. The non-random strategies that the study compared with were all deterministic rules based on technical indicators.
It's still interesting that those rules didn't do better than random while having higher volatility.
Aren't fund managers on average slightly less successful than the index? Throwing darts at a board or using a capuchin monkey to decide (random allocation) is a better strategy than investing in a managed fund.
Not a joke, an actual observable/measurable fact. [1]
Just to clarify a bit. This is about long, passive holds compared to active trading. On average, you're better off staying long by diversifying on 500 large, successful companies, compared to picking choosing random companies on short term flips. Investing in the S&P is about as strategic and complicated as betting who is going to win in a fight: Connor McGreggor or a semi-truck carrying 50,000 pounds of lumber going 70mph. The S&P is and index of the largest 500 companies out there. Either they are doing well/better or the entire economy is going straight to shit... because, in essence, they are the economy. This article technically argues against throwing darts on a board because active managers act as the dart throwers.
I agree, but such observations weren't part of the linked study so it has no business making claims about it. They simply compared a few deterministic strategies with a random strategy.
5 comments
[ 4.2 ms ] story [ 23.0 ms ] thread> Our main result, which is independent of the market considered, is that standard trading strategies and their algorithms, based on the past history of the time series, although have occa- sionally the chance to be successful inside small temporal windows, on a large temporal scale perform on average not better than the purely random strategy, which, on the other hand, is also much less volatile. In this respect, for the individual trader, a purely random strategy represents a costless alternative to expensive professional financial consulting, being at the same time also much less risky, if compared to the other trading strategies.
The reference to "expensive professional consulting" doesn't make sense to me, because that wasn't a studied strategy. The non-random strategies that the study compared with were all deterministic rules based on technical indicators.
It's still interesting that those rules didn't do better than random while having higher volatility.
Not a joke, an actual observable/measurable fact. [1]
[1] https://www.cnbc.com/2019/03/15/active-fund-managers-trail-t...