Some Stories of Share Markets..!!!

#21
Advantages of Spreading The risk

I have a friend who is from the colony where I grew up. Very brilliant guy, All India topper in Senior Cambridge exam, then IIT Mumbai ,IIM Ahmedabad...ex Citibanker and then a promotor of a successful finance and leasing company. He had an office in Nariman Point in Mumbai and I used to drop in for 10-15 minutes chat whenever I used to be in that area.

One day I dropped in at lunch time and he ordered some lunch for both of us from outside. As we were waiting for the luch to come, in the meanwhile his secretary came in and informed that the MD of a difficult account which they had given some machinery on lease is on the line. My friend told her to put him on the line...then next 5 min the conversation went on in which my friend was very strongly telling him to pay up the dues or his company will file for winding up petition against the defaulting company for dues recovery...

I was very surprised that my friend was talking tough with the defaulter company MD inspite of his money being stuck up...normally in such cases one expects concilliatory talk, installments, rescheduling...request for payment etc.... I asked him how can he talk so tough with the other guy...he may get offended and not pay up at all. His answer was an eyeopener for me regarding taking business risks. He said that their company policy is not to take exposure of more than 2 % in a single company and not over 5 % in a business group...so he can afford to talk tough and tell the defaulters who are willfully defaulting ...and he said that he is very sure that the payment will come after the tough talk and if it does not, then they plan to proceed against the company as the stake was only 2 % maximum....if the stake was 10 or 20 % then he would be begging for getting the payment.....

So true in our trading too..with 1-2 % risk we dont care if the trade goes bad but a trade with 10 or 20 % risk puts us in hope and prayer mode....

Smart_trade
 

manishchan

Well-Known Member
#22
May be we can put this also.. :)

How stocks became their bread and butter

Three young people who quit lucrative careers to make a living from the stock market recount their experience

Many Indian investors look upon the stock market as a slot machine where Lady Luck calls all the shots. They hesitate to invest even a part of their savings into it, for fear of losing money. Yet, here is a set of qualified young people who have opted out, in the prime of their careers, to take up equity investing as a full-time profession. They swear they will never go back to nine-to-five jobs. We spoke to them to find out how they made the transition and how they manage the risks of equity investing.

Paying the ‘tuition fee’

None of the successful investors we spoke to made a beeline for the market straight from college. They invested for several years before taking the plunge. On the way, they lost a packet too!

Numbers or ‘quants’ were Pawan Arora’s passion right from school and this prompted him to write the IIT-JEE just after his 12th. He didn’t crack it, instead he acquired a computer engineering degree before taking up a career with a multinational IT firm. It was from his colleagues there, that he acquired an avid interest in the markets.

Initially, his trades went badly and Pawan even “blew his account” twice. “But I kept reminding myself that CAT/JEE aspirants have to wait for one year to write the exam again. I had this market open everyday and could learn from it.” He kept at it for six years and finally developed his own system of trading.

After a particularly long winning streak in 2013 when he managed to multiply his capital five-fold, he decided to take up equities trading full-time.

He signed up with discount broker Zerodha, where flat brokerage structures helped him breakeven fast.

Pawan strongly believes that no one can be a successful trader without paying their ‘tuition fees to the market’ – taking losses and learning from it.

Madan Kumar, an engineer from Madras University and an MS from Virginia Tech, got interested in equities while working as a software engineer in the US. His friend was active in earnings-based trades. Madan dabbled in equities, soyabeans and the S&P index where he “lost a packet”.

He soon realised that trying to predict the markets was a mug’s game. Reading John Carter’s Mastering the trade taught him about the mindset one needed to win at trading. He moved to India and decided to take up full-time trading. Madan’s trades on the Nifty and Bank Nifty futures saw him notch up a 300 per cent gain on his account in 2013.

Priyanka Betrabet, armed with an MBA and a diploma in treasury management, shuttled many jobs over 13 years, before deciding to become a full-time equity investor. Her interest in fundamental investing was acquired in college when both her father and grandfather were avid investors. Her father chipped in with the initial capital in 2000 to get her started.

Priyanka did lose money on stocks like Educomp Solutions and BHEL, but developed the knack of spotting winners. “It was a lot of common sense. I looked for companies with big brands, which were monopolies in their market or close to it and had zero debt.”

This strategy led her to buy stocks like P&G India, ITC and MRF, which turned out to be multi-baggers. “I had made decent money on my portfolio and decided to invest full-time. Equities have helped me pay back my father and fund my UK degree. Frankly, I am making far more than I did when I had a job,” says Priyanka, who says that she doesn’t rely on her husband for her expenses.

Perfecting a system

After many years learning the ropes, each of these investors actually attained stock market success due to one thing — focusing on a single strategy that they understood well. Madan owes his big wins to what he calls a “laser-sharp focus” on trading just two instruments — Nifty futures and Bank Nifty futures. He initiates or closes trades based on breakouts in the price chart. He doesn’t set price targets but uses stop-losses without fail. “I don’t use any fancy technical indicators — only the supports and resistances. Today, there’s a lot of noise in the markets and your success depends on filtering it out,” he explains.

Pawan’s strategy relies mainly on positional trades on Nifty futures using pivots. “Initially, I found that I was making the mistake of booking out of positions too early. So, I decided not to set any targets. I let the profit making positions run on until I could see clear signs of reversal. That helped me maximise my profits.” Pawan also tries to be in the market at all times irrespective of whether the trend is bullish or bearish. Between April and June 2013, as the Nifty moved up and down 600-700 points, he made a killing.

As a fundamental investor, Priyanka has found that avoiding less known stocks and holding on through bear markets paid off for her. She picked up ITC at ₹180 because she had many friends who could “never give up smoking”, no matter how much cigarette prices soared. Not one to worry about absolute prices, she also bought P&G India at ₹1,900 (₹7,200 now) and MRF at ₹20,000 (₹38,000) because of their strong brands.

Each of these investors has a capital cushion to handle risks too. Madan is particular about ensuring that a drawdown (losses) doesn’t decimate his capital.

“I make sure that I don’t risk more than 1 or 2 per cent of my account balance on any trade.” He has some money stashed away in a long-term portfolio and FDs for cash flows. He also believes that if you are keen to make a living as an equity trader, you need to deploy substantial capital. “Sometimes, you find people wanting to make ₹50,000 a month with an account size of ₹5 lakh! This is simply impossible.” Pawan ensures he reduces his leverage with higher volatility.

Finally, apart from a winning strategy, there’s one other thing that ties together these full-time equity investors — a mindset that allows them to take losses in their stride. Pawan says it helps to treat your profits or losses as ‘just numbers’.

“Not giving up and not letting your emotions overrule your discipline is the key to making money,” he says.



 

VJAY

Well-Known Member
#23
Advantages of Spreading The risk

I have a friend who is from the colony where I grew up. Very brilliant guy, All India topper in Senior Cambridge exam, then IIT Mumbai ,IIM Ahmedabad...ex Citibanker and then a promotor of a successful finance and leasing company. He had an office in Nariman Point in Mumbai and I used to drop in for 10-15 minutes chat whenever I used to be in that area.

One day I dropped in at lunch time and he ordered some lunch for both of us from outside. As we were waiting for the luch to come, in the meanwhile his secretary came in and informed that the MD of a difficult account which they had given some machinery on lease is on the line. My friend told her to put him on the line...then next 5 min the conversation went on in which my friend was very strongly telling him to pay up the dues or his company will file for winding up petition against the defaulting company for dues recovery...

I was very surprised that my friend was talking tough with the defaulter company MD inspite of his money being stuck up...normally in such cases one expects concilliatory talk, installments, rescheduling...request for payment etc.... I asked him how can he talk so tough with the other guy...he may get offended and not pay up at all. His answer was an eyeopener for me regarding taking business risks. He said that their company policy is not to take exposure of more than 2 % in a single company and not over 5 % in a business group...so he can afford to talk tough and tell the defaulters who are willfully defaulting ...and he said that he is very sure that the payment will come after the tough talk and if it does not, then they plan to proceed against the company as the stake was only 2 % maximum....if the stake was 10 or 20 % then he would be begging for getting the payment.....

So true in our trading too..with 1-2 % risk we dont care if the trade goes bad but a trade with 10 or 20 % risk puts us in hope and prayer mode....

Smart_trade
Thanks for sharing St da...:clapping:
 

TraderRavi

low risk profile
#24
From Woking to Wall Street: UK day traders dream of glory in daily grind

WOKING, Britain (Reuters) - The British trader accused of sparking market chaos in 2010 cut his teeth in a drab building in a sleepy suburb that highlights how "day traders" dreaming of glory have to first tackle grim offices, zero glamour and high risk.
The building is home to Futex, one of several so-called "trading farms" in the UK that give training, office space and equipment to people prepared to make short-term trades, mostly within a day, with their own money in the hope of being hired or sponsored for a cut of their profits.
Navinder Singh Sarao - who has been accused by U.S. authorities of contributing to the May 2010 "flash crash" in Wall Street - worked there between early 2003 and early 2008, according to a statement by Futex on Friday.
"(Sarao) sat in a separate part of the company, away from the rowdy bunch," said Simon Maelzer, who worked at Futex for a few months in 2008. "He created his own space on the trading floor. I always noticed this guy, who was completely 'in the zone'."
Sarao has been charged by U.S. authorities in a criminal and civil case with fraud and market manipulation; he is currently in jail in the UK. Authorities in the United States have sought to link him to the May 6, 2010 'flash crash,' where the U.S. stock market temporarily lost $1 trillion in market value in a matter of minutes.
Maelzer, now a global macro strategist for research firm MacroVigilance.com, said that while Futex was a good company, those who joined were in for a hard ride at the start.
"The Futex set-up was tough for beginners and many would get despondent and give up, although this is typical of the futures market in general. I didn't even get a salary at all," he said.
The Futex traders - mainly men aged 25 to 35 - would make the daily commuter grind from London to Woking, around 23 miles (37 km) to the southwest, bringing their own laptops and software program, and then take on the markets in the spartan Futex office, said Maelzer.
Futex would provide them with office space, desks, terminals carrying market data and phonelines and would take on the most successful ones, such as Sarao, help to fund them and share in their profits.
For Jonathan Roy - whose first interview was at Futex after leaving Liverpool University - the fact that he had to go to Woking, an archetypal commuter town far from the glamour of the capital, was slightly offputting.
"It's a bit of a trek just to get down there."
HIGH FEES
One Futex trader described Sarao in a March YouTube clip this year as a 'legend', and an online petition was underway by other traders to block Sarao's extradition to the United States.
"He's a legend in our firm, I'd say. During the financial crisis, this guy had, for want of a better word, balls. He just used to get into big positions. He saw the risk, he saw the reward and he took on the trades," Futex trader Miltos Savvidis said in the YouTube clip.
The few, casually dressed traders outside the Futex office in Woking this week said they had been told not to comment on the situation concerning Sarao, who is opposing extradition to the United States.
Savvidis did not respond to requests sent via Futex for further comment. In a statement, the firm said it had no concerns about his trading during his tenure, which ran from early 2003 to early 2008.
"Navinder's method involved no use of algorithmic trading and as such was purely a 'point and click' style of trading whilst he was at Futex," the firm said. "His trading did not give Futex (nor the regulators) any cause for concern."
Roy decided against Futex and went to trade his own money – known as 'prop trading' – at Schneider Trading Associates in London instead.
Roy said that while he gained invaluable financial markets experience at Schneider Trading, it was very difficult to make money to start off with due to high fees for the use of the desk and commission fees on executing trades. Roy is now a partner at London-based firm Charles Hanover Investments.
"It's quite brutal to start with. We had 30 people to start with, but it was soon whittled down to about nine."
Those in the industry said that one of the challenging aspects about Futex, Schneider Trading Associates and peers such as Amplify Trading were the fees for training courses and use of the office.
Richard Edwards, who worked at various top investment banks including Lehman Brothers before setting up his own research firm HED Capital, said 9 out of 10 prop traders would lose money, but they all persisted in the hope of being the one who made it big.
"It's a heroic activity because you're betting so much, which helps the market thanks to the extra liquidity. Most of them will lose out but those who make it stand to make millions."


link from deneb thread.
http://www.investing.com/news/stock...-traders-dream-of-glory-in-daily-grind-338789
 
#25
Flash Crash trader Navinder Singh Sarao 'could make £90,000-a-day'



Hounslow-based trader accused of sparking the 2010 Flash Crash has described himself as an 'insomniac' who did very little work most of the time

Navinder Singh Sarao described himself as an “insomniac” who boasted that even seven years ago he could make close to £90,000 a day trading the financial markets, but would often "hardly work".

The 36-year-old is accused of making bogus offers to trade on one of the world's biggest financial markets, helping to bring about a market crash in 2010 from a house in Hounslow. He denies any wrongdoing.

In an email to the then publisher of “Trader Monthly” in 2007, Mr Sarao asked what he would need to do to be featured in the magazine’s “top 30 under 30 list”. He continued: “You must understand that for me to be in the top 30 is not a vanity thing.”

“However, I am looking to set up a trading arcade of my own and maybe the publicity would be a good thing for the arcade,” he said, adding “maybe we can do something in the future”.

He boasted that he would then “normally make circa $133,000 (£88,000)” on a volatile day, and between $45,000 and $70,000 on quieter ones.


The emails were released by US authorities as evidence, and were first reported on by Bloomberg.

Mr Sarao said that he was an “insomniac” in an email in 2012 to an employee of his broker at the time RJ O’Brien, and claimed that he normally slept between 4am and noon, in advance of trading US markets as they opened at 2.30pm British time.

He said: “When the market is volatile I trade the European open and will the skip the US trading - unless it’s still volatile.”

“I have made the majority of my net worth in I would say no more than 20 days trading, that’s how I trade - mostly I hardly work but when it’s volatile I have to work 12 hours a day.”

The algorithm Mr Sarao allegedly employed on the day of the Flash Crash allowed him to make many of these bogus offers, above the market price, and cancel these before they would be activated. An automated system would help him do this more quickly than could be achieved by a manual trader.

But Mr Sarao claimed last year in an email to the Financial Conduct Authority (FCA) that all his trading “is done with my hand and a mouse”. He said that he “changes his mind very quickly”, which is “unique about my trading, I trade very large but change my mind in a second”.

He added: “What makes me change my mind? Well it could be anything, a move in one of the other markets that I look at a, a chart set up that I suddenly remember from my 11 years of trading, or simply the WAY I was filled made me doubt my position, or for the large part is is just my INTUITION.”

Mr Sarao spent close to six years of his trading career operating out of Woking-based Futex. Paolo Rossi, the company's chairman, said that his former employee Mr Sarao: "Was always going to be the kind of person that I believed would be legendary in some way in the future."

Mr Rossi told Bloomberg that Mr Sarao joined Futex at the end of 2002 after the company found him "to be an honest person" who "was very bright, very dedicated and he was willing to take on risk".

"If he had one thing that was different to everyone else, he wasn't interested, or hasn't been interested in the money that successful trading can bring in order to spend to the money," Mr Rossi added.

"He's been interested in purely focusing on growing his trading account. And that's unusual."

Mr Sarao told the FCA last year that he had paid Edge Financial to build a program to help him disguise his orders more effectively, so that so-called “front running” high-frequency traders (HFTs) could not pick him off.

Front runners look at the orders in the market and attempt to capitalise off of ordinary investors. The practice of creating fake orders allegedly created by Mr Sarao to trick the market is known as “spoofing” in the business, and reduces HFT profits.

In his correspondence with the FCA Mr Sarao said that he did not “like the HFT arena and have complained to the exchange numerous times about their manipulative practices, please BAN IT”. Mr Sarao has been praised as a “hero” for the practices he is accused of by a leading fund manager, and making financial markets “safe for ordinary investors”.

Mr Rossi said that it was "not possible" that Mr Sarao had caused the Flash Crash, adding: "Was he a contributing factor? Probably, a million things were a contributing factor."

The Futex boss argued that traders operating from their homes did not require stricter policing, as they were too insignifcant to impact the markets. "[Mr Sarao] is at such a big disadvantage that he shouldn't even do it. That is my real strong belief."

Mr Rossi said: "If he's found innocent of the allegations, then he will be the world's superstar trader. He'll be the most famous trader in the world."



SOURCE :- http://www.telegraph.co.uk/finance/...-Singh-Sarao-hardly-worked-emails-reveal.html
 

TraderRavi

low risk profile
#27
From what I gather I think Navinder Singh Sarao is innocent and USA is in a hurry to put blame on somebody, they will fail badly and will not be able to prove anything.
regulators contacted him in 2009 , one year after he started using software , so he knew he is in the radar , still he continued doing same thing.
 

TraderRavi

low risk profile
#28
Day Trading Is a Sucker’s Game

Posted by Eddy Elfenbein on August 8th, 2013 at 2:20 pm

I’ve got bad news for all you day traders out there. Just like assembly-line workers, switchboard operators, copy clerks, and hand weavers before you, you’ve now been automated out of existence.

Why, you ask in dismay? The latest issue of Wired explains everything.

It would appear that yet another exotic breed has been spotted in the thickets of the Wall Street jungle—or more accurately, in suburban New Jersey, which is where all the high-speed servers and fiber-optic cables that are their lifeblood are located. This new breed, the high-frequency trader, or HFT, is a scientifically engineered, ultra-streamlined version of the financial sharks of yesteryear.

Or rather they’re not, since they’re not really like investment bankers, stock analysts, junk-bond dealers, corporate raiders, sellers of complex derivatives, or any other species we’ve seen before. In fact, they’re not really interested in the stock business at all, if by “business” one means the furnishing of capital to companies so that the latter may profitably market their goods and services and go on to share the resultant bounty with investors.

What they are interested in is numbers. Streams and streams of numbers. Their approach is to develop algorithms that detect minute changes in stock prices and then to have computers place buy or sell orders on the basis of the patterns in the fluctuations. If an algorithm notices, for example, that a particular stock’s price has gone up for several minutes consecutively, it might decide to hop on the gravy train, buying up lots of shares, only to dump them a second later. Each individual sale might only net the user a fraction of a cent, but multiply that by several hundred shares a day, and by tens of thousands of iterations between 9:30 a.m. and 4 p.m., and you have, in theory at least, the possibility of some serious positive cashflow.

These HFTs (also known as “Quants”) draw their ranks not from MBAs but from former physicists, engineers, IT geeks, and even pro poker players, and they seem to share a curiously abstract view of the stock market, regarding it as a kind of abstract mathematical puzzle akin to Sudoku—you can imagine them getting together on Saturday nights to discuss Fibonacci sequences or proofs for Fermat’s Last Theorem. They don’t bother to concern themselves with p/e ratios, quarterly dividends, or earnings per share, let alone with the companies they trade in or the products made by those companies. Instead, they focus on evermore complex methods of data mining, as well as the hope of ever-faster modes of information transmission, since their profits derive from their ability to stay ahead of the curve, however infinitesimally. Their One Great Hope is the Perfect Transmission Network, one that would enable their remote transactions to be executed on Wall Street at the speed of light—in other words, without the lag time, sometimes several excruciating microseconds in length, currently imposed by technological limitations.

If all this sounds slightly insane, it’s because it is. Especially when one learns just how small the profits involved are. One HFT at a recent conference in London hypothesized that under ideal conditions—famous last words—his latest algorithm would be able to execute 64,000 trades per day, at an average profit of $0.0001 per trade, for a grand total of $600. Not shabby, by any means, but at that rate, he might as well get an honest job. Another researcher speculated that by buying up all the Tweets issued during a given time period—say, six months—and then aggregating them and analyzing them for words with emotional content (“calm,” “happy,” “relaxed,” and the like), it would be possible to divine America’s financial mood and thus predict the course the Dow will take a few days down the line.

Interesting? Sure. Sound investing strategy? Highly debatable.

What all this means for you is that now more than ever, day trading is a fool’s errand. If you were ever tempted to enter the fray, recognize once and for all that those banks of computers chugging away at their algorithms have you hopelessly outclassed. There’s simply no way an individual human being can compete against a fleet of CPUs that rivals NASA’s. Do not, I repeat, do not try it. You will lose.

The good news is that this means that our formula for investing is now at an even greater premium. The ingredients of that formula are the same as ever: (1) Find good-quality companies; (2) Buy said companies’ stock at good prices; (3) Be patient. You don’t need to be the fastest trader, or have the most gizmos working for you. You don’t have to make the perfect trade every time. What you do have to do is research the companies thoroughly, and focus on the long term.

The cult of the financial analyst was laid in its tomb ten years ago. Now the much-vaunted figure of the day trader is headed for the same scrap heap. But the intelligent investor is left standing, even if a robot beats him out of a fraction of a penny. And we’ll still be here even when all those transmissions actually take place at the speed of light, thus depriving the HFTs of their modus vivendi.

In the meantime, it’s best to remember those haunting words by T.S. Eliot, himself a Lloyd’s Bank employee:

Between the order
And the confirmation
Between the bid
And the ask
Falls the shadow.

http://www.crossingwallstreet.com/archives/2013/08/day-trading-is-a-suckers-game.html
 

TraderRavi

low risk profile
#29
bclund's take on above article by eddy :

Eddy’s argument against day trading is based on the fact that with the increased technology and talent that now exists in the world of High-Frequency Trading (HFT), the average retail trader doesn’t stand a chance. Which leads him to this conclusion…

What all this means for you is that now more than ever, day trading is a fool’s errand. If you were ever tempted to enter the fray, recognize once and for all that those banks of computers chugging away at their algorithms have you hopelessly outclassed. There’s simply no way an individual human being can compete against a fleet of CPUs that rivals NASA’s. Do not, I repeat, do not try it. You will lose.

The only problem with this statement is that it is wrong. Well, kinda wrong.

However, this is not an accurate portrayal of the realities of day trading.

With the advantage of having been on both sides of this activity; trading and broker dealer, I can tell you that it is true that HFT’s do impact your ability to day trade. For example, I regularly see execution reports come back from the exchanges denominated six places to the right of the decimal point (.000001), which allows automated, high volume trading to squeeze profits out of nano moves.

I also often see stocks trade in a tight range, then experience very “suspicious” spikes that take price through obvious stop/limit order levels, only to return to the previous range in a matter of seconds. This too is the footprint of the aforementioned Al Qaeda-like HFT firms at work.

But here is what I also see. I see a lot of people who make money consistently by day trading. These are not Johnny-come-lately types jumping on a fad fueled by the bullish tape. They bear no resemblance to the secretaries, used car salesmen, and dentists who showed up on the covers of Forbes and Fortune in the late 90’s boasting of four-hour workdays, trading on the beach in the Bahamas, and giving up their “day jobs” due to the cash they were pulling out of the markets on a daily basis.

No, the successful day traders I know have been doing it for years.

These are very highly skilled, disciplined traders, who use risk based methodologies and continually adapt their trading to overcome the latest threat du jour, the one always destined to sound the death knell of day trading. The current one being HFT’s. In fact, most successful day traders will quietly say (or sometimes not so quietly say) “there’s the cry of the loser,” when they hear someone complain that they lost money because of HFT’s.

In terms of the retail participant, successful day traders are the most elite group in the markets. They make money based on their own actions. They are not beholden to analysts, CEO’s, the financial press, Fed governors and heads of Central Banks, false accounting scams, or earnings announcements. They don’t have to “wait” to make their money. They make it today, and tomorrow, and the day after that. And best of all, since they are always actively watching the markets and by definition are flat at the close, they are largely insulated from “acts of God” like earthquakes and hurricanes, as well as the more dangerous “acts of Man” like 9/11.

So is day trading easy? No!

Do most people lose at it? Of course they do!

But day trading is not an investment style or philosophy, it is a level of financial mastery that most will never achieve, but millions desire.

http://bclund.com/2013/08/11/is-day-trading-really-a-suckers-game/
 

TraderRavi

low risk profile
#30
Prof. Noah Smith's take on above article by eddy

The article, by Eddy Elfenbein (excellent name, btw), is about day traders being made obsolete by HFT robots:
I’ve got bad news for all you day traders out there. Just like assembly-line workers, switchboard operators, copy clerks, and hand weavers before you, you’ve now been automated out of existence...
What [HFT] means for you is that now more than ever, day trading is a fool’s errand. If you were ever tempted to enter the fray, recognize once and for all that those banks of computers chugging away at their algorithms have you hopelessly outclassed. There’s simply no way an individual human being can compete against a fleet of CPUs that rivals NASA’s. Do not, I repeat, do not try it. You will lose.


This gave me a new, positive vision of HFTs. If day traders across America really do believe what Elfenbein is saying, and if they really do stop day-trading and start doing long-term fundamental investing, then the HFT robots are doing the Lord's work.

Why do I say this? Because here's the thing about day traders: Even before HFT, day traders consistently lost money. Actually there is a small number of day traders - maybe 1% - who make money day trading. But the rest just lose, and lose, and lose. The evidence is not ambiguous.

As for the reason that human day traders lose money, there are probably several factors. Humans are overconfident. We don't benchmark our performance very well. Mental accounting makes us ignore trading costs (which tend to gobble up whatever profits a day trader thinks he's making, and more). Self-attribution bias makes us think that our gains came from skill and our losses came from luck. The basic fact is: You, a human, make a lousy, lousy HFT algorithm. And if robot HFTs make you realize this fact and quit trying to be a human HFT, then they are doing good for both you and for the world.

Thinking of this, I'm starting to realize why Zero Hedge hates, hates, hates HFTs. With its shirtless Brad Pitt avatar and its tough-guy language, Zero Hedge caters to testosterone-junkies. Testosterone junkies are young overconfident dudes with a little money in their pocket, who maybe work day jobs on Wall Street, or maybe just got their law degrees, or maybe work as engineers and think they'll be the next Steve Jobs, or whatever. Being young, overconfident dudes, they think their intelligence and energy and sheer will-to-power will allow them to take on the world. And when it comes to their finances, taking on the world means beating the market by seat-of-the-pants day trading.

We've all met these guys.

So of course these guys, and the websites that cater to them, despise HFT. Not because it crashes markets, not because it wastes money on pointless "information tournaments", but because it takes away their dreams of outwitting the world and landing that big score.

To which I say: Sorry, dudes. Much as it pains me to say this to anyone, your day-trading dream was always kind of an illusion. You were always just going to eat trading costs and die. Here's my advice: Don't give up on crazy world-conquering dreams, but try to switch to one that creates real value for society instead of just adding noise to financial markets and feeding the coffers of quant funds. Give up the day-trading dream, and focus on being the next Steve Jobs.

http://noahpinionblog.blogspot.com.au/2013/08/a-healthy-side-effect-of-high-frequency.html
 

Similar threads