Discretionary vs Systematic
Since I am a finance whiz kid still in HS I would like to know how actual traders on the Street view this. Precisely, are there any purely discretionary traders left, and if so, then do they generally perform worse than purely algorithmic traders? And, most importantly, what is your outlook on the future of trading? I just want to know whether or not this is a field I want to go deeper into.
Yes, there are still discretionary traders... 70% of our trades on our equities desk are executed systematically.
Let me say this... If you want to be a trader working for yourself, it doesn't matter whether you're discretionary or an Algo Trader. Algo trader loses too, just as much as a discretionary trader. Of course, strategies will diff depending on the market environment. Algos tend to do better in certain market environments and discretionary tends to do better in certain market environments. I have connections on the street that works for a notable prop firm (Not going to name the firm) and these guys are in fact discretionary, but they do have in house programmers if you want to automate your trades. At the end of the day, the only thing that matters is your ability to make money, no matter how you do it. Honestly, when I look at the cash equity markets at my desk on a day to day basis, I know when a certain price is relatively cheap or rich and I get an intution whether or not the price will mean revert, that comes with looking at the market for so long and I know I can make money, but the dynamic of the market moves so fast... I rather use algos in terms of execution.
Thank you for answering.
Discretionary Intraday Prop is still a thing! (Originally Posted: 06/18/2017)
I'll keep it anon and just describe. They do intraday discretionary trading of futures manually, not algo.
They take in a huge class and cut it down to 30% before going live but don't charge training fees etc and there are a few guys making good money there so I don't think it's a scam... I just thought all of the intraday stuff had been swallowed up by algo?
I work for a decent sized macro trading desk where we trade intraday in fx/rates alongside our core positions on a purely discretionary basis and have consistently made money for the past decade. Also, every single bank has guys prop trading FX intraday in addition to market-making using technical analysis and "gut instinct". personally, I think the idea that algos are killing trading is greatly exaggerated, seems like plenty of people still make money in ways that they shouldn't be able to if the EMH is true in only weak form
Thanks for your response.
And you see a future in this? In other words do you think firms like this will maintain an edge that the algos can't get?
Quant quant quant - where did discretionary go? (Originally Posted: 07/08/2012)
Hello all,
Could anyone please explain to me why there is such a mad obsession with quantitative trading these days? Every single hedge fund seems to have the word quant written on it, especially if it does FX or futures indices.
Whatever happened to trading based on fundamental and technical analysis? Is there a loss of faith in this methodology? Is this method of trading due to expire?
The way I see it:
Man wants to explain everything. As society progresses and the theoretical front grows, it gets easier to model everything with formulas. Eventually as the math gets more advanced and programming more robust, I honestly think a pure quant approach will have a good hit rate.
There's still probably room for error and messy probability involved in being quant heavy, but the converse also holds true. When you analyze things fundamentally, you don't have the quant heavy backing. At this point in time I think the general consensus is still fundamentals trump all.
Quantitative analysis is just another important skill set a trader should have. Fundamental and Technical analysis are still useful in some regards however a firm would rather hire a person who can use all 3 of the strategies above rather than just one or two of them as that person would add more value to the firm which could potentially lead to greater profits.
I can assure you that 95% of those HFs that trade FX and futures while claiming to be 'quant' heavily rely on non-discretionary technical analysis mandates that revolve around trend following or mean reversion.
Investors assume the managers are very smart if they see the word "quant"?
This is what Wall Street gets for poaching talent from fields such as physics/chemistry for the past 15-20 years.
Thank you for all the comments.
So I guess we can conclude that it is essentially a marketing fad?
I mean, I know that Wall Street is hot for science PhDs, but I was wondering just what happened to all those people who used to do things the way they were always done: fundamentals with charts for timing. The way you see it now you would imagine that all funds are run off of algos.
The one advantage I think there would be with purely quant driven stuff is that you can backtest ideas pretty easily and that makes it easier to raise money. But I would imagine that the more quantitative everyone gets with their strategy, the more the edge might fall over those who know how to think outside of purely numerical ideas in the market and understand the fine points that computers can't read. Just my theoretical hypothesising. Sort of the whole 'adaptive markets hypothesis' idea.
I think it's important to take into account the volume of trades the computers make up now. You can't beat the computers at their own game. If you're running a mean reversion strategy manually, you'll be outcompeted. If you're trading based on broker phone calls (hi Blackhat) then you're still in the money. This is anything but a current fad, HOWEVER I would not do a science PhD just to become a Quant. History will teach you that going into a career in 4-5 years time after it becomes the new in thing, will put you in a queue with everyone else that jumped on that bandwagon, and the profits/person will come down to normal profit rates.
Looking at DE Shaw on linkedin will show you they are recruiting Phd's from the Asian subcontinent en masse, that can crunch numbers for 25% of the price you'll do it for.
Transition from Discretionary to High Frequency Trading (Originally Posted: 03/26/2010)
I am wondering if one can easily transfer from discretionary trading ( taking directional view) to High frequency trading/Market making style firm (non-directional view) ? For instance, if you are trading equities or S&P futures at one firm, how likely is it that a Market making/High frequency trading firm would want to hire you ?
Thanks.
Some questions... Can you program at least in Java, C++/C, perl? Do you know ruby, ocaml, etc? Do you understand technical details like FIX Protocol, run-time computing, at the more advanced level, TCP/IP socket protocol and field-programmable gate array programming, etc.? Do you understand the major HFT players, darkpool nuances, anti-gaming algo practices, etc? Do you understand the major algo's used in the market and their strengths and weaknesses? Do you understand the eccentricities of different eTrading markets and how to capitalize on these differences?
Does the trader really need to know how to program ?
Hahaha I don't think he's going to Ren Tech.
This is pretty over the top, but you get the jyst of the fact that High Frequency Trading by definition is not for someone who doesn't understand the above concepts, it doesn't mean you have to have a PhD in Computer Science.
If you have a background in Math/Physics/Engineering/CPUS, it will help. If you have no idea what dj is even talking about....then I'd say it's gonna be a difficult transition for you.
For ex. I'm doing High Freq/Algo/Dark pool at my SA this summer for a firm noted for all the above....I'm also a Physics/Math Major from a top school and can read code and write code and I have been conditioned to think the kind of way High freq traders need to think to develop ideas that will be valuable to their team/company/fund.
The question "Do traders need to know that" depends on the firm and whether the traders are trading for clients by using the algo's and dp ags developed by quants or whether its prop and the traders are the quants.
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