Getting quite curious here. The winner of a trading competition in my country gain 700% in 31 trading days. pull out the maths, that is about 7% a day and he is trading Kuala Lumpur Stock Exchange (KLSE) which is not quite active. How could that possible? Any comment?
The guy has found a method with an edge and applied it. If he comes up winner or second in several trading competitions, this should be the case.
Imagine you go to a roulette table with a trading class of 64 people. As we know, Roulette is a loser's game with a negative expectancy, and in the long run there is no strategy to beat the house. For simplicity reasons I assume that the house is generous today and that the zero results do not count.
Now each of you puts $ 1 on the table, half of you choose Black, the other half Red. After the first round 32 players have lost their capital, the other 32 have doubled up. Second round again, half of the players choose Black and the other half Red. Each of them puts all in, which is now $ 2 per person. After six rounds of playing all 31 of your friends have lost their capital, and you are the lucky winner and owner of $ 64.
Congratulations. You have posted a profit of 6300% during one evening by playing a loser's game and certainly dwarfed that guy in Kuala Lumpur.
If you take 64 fond managers and watch them over 6 years, one of them will show an exceptional performance by sheer luck. Go and let him manage your money.
Last edited by Fat Tails; October 18th, 2010 at 06:39 PM.
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That sounds risk to me if I am going to let 'the manager' to manage my money. =P.
And, if it is due to an edge you mentioned, I am sure investment banks are looking after him now.. 7% a day is quite incredible.
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Unsure how this contest was structured, but if options were involved, this trader may have had an effective lottery ticket cash in for his account. Even with a futures account, it is theoretically very possible. For example, one could potentially capture $1 per ct each and every day. At full leverage, that's easily over 30% a day.
I wouldn't disregard the contest winners achievement. Past trading contest winners have gone on to successful trading careers. Many of them are very good traders to begin with, and simply looking for the fame and recognition that goes with winning. ie Martin Schwartz used contests to help build his business. Look at it this way - you get all of the positives when you win, and nobody knows when you flame out in disaster.
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Anyway the contest only involves common stocks not even warrants. That is why I am wondering. you can take a look at the structure if you are interested -> oskic.com =)
Btw, I don't think there is any leverage involved.
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