Well he is a quant. Nothing wrong with that. But I would like to see how trading faster will make more money per trade than a longer duration trade.

I suspect that the argument is in your illustration and the interpretation of it. My interpretation is that the more trades you make, the less money you make per trade. So he would need to argue that he can make more money per trade by taking more trades.

But I suspect that his interpretation is for overall profit, and not per trade. So the real argument is perhaps on the interpretation of your illustration. Perhaps you can clarify what you intended.

Mike

We must acknowledge that we live in the world of algos, HFTs, etc and we just cant compete with their speed of execution, ability to recognize discrepancies, therefore I suggest to lower the number of transactions, increase the time frame in the hopes that one could find his niche.

There are always exception to the rule, but what I said above would help most.

I thought it was fairly obvious. Let us assume "skilled trading" is simply recognizing when to choose to allocate to a risk-free asset with return Rf or the market portfolio with return Rm. Then, just using one-factor CAPM,

Rp - Rf = a + b*(Rm-Rf) + c*Max(0, Rm-Rf) + ep, Rf < Rm

I think most traders should recognize that Max(0, Rm-Rf) has the payoff of a free call option, and if I give you a free option, you want the volatility to increase because then it is priced higher. All else equal, if you want exposure to higher volatility, you want to trade more frequently.

There is nothing wrong with quants as people, of course. Except that periodically they blow up a few hedge funds, banks, etc just to proceed to find another research job due to their highly mathematical research skills.

I thought it was fairly obvious. Let us assume "skilled trading" is simply recognizing when to choose to allocate to a risk-free asset with return Rf or the market portfolio with return Rm. Then, just using one-factor CAPM,

Rp - Rf = a + b*(Rm-Rf) + c*Max(0, Rm-Rf) + ep, Rf < Rm

I think most traders should recognize that Max(0, Rm-Rf) has the payoff of a free call option, and if I give you a free option, you want the volatility to increase because then it is priced higher. All else equal, if you want exposure to higher volatility, you want to trade more frequently.

Let's not put everyone in a bulk category. There are good quants and bad firms for example, and there are bad quants making bad decisions.

Having quants around on futures.io (formerly BMT) is helpful to the community...

Mike

Let's not put everyone in a bulk category. There are good quants and bad firms for example, and there are bad quants making bad decisions.

Having quants around on futures.io (formerly BMT) is helpful to the community...

Mike

I am particularly interested in the "empirical" part.
Let's see if he resorts this argument to some quant fund that has nanosecond execution while most of us still argue in the millisecond domain.

But, the reality is that I can present a simple argument based on REAL EXPERIENCE while they "prove me wrong" with theories and numbers.

I should dispel this myth. There's no quant fund with nanosecond execution. Everyone gets a fixed length of fiber to the order gateway, through which the transmission time already puts you in the microsecond region.

But I think that was not at all the intention of the illustration which is why I said you can argue anything, but it's probably only for sake of argument and not actually beneficial to the end discussion.

Right, I think I'm dragging this discussion off-topic, I'll leave it at this.