Good morning, After a few months, I have managed to reach the state of the art for exploiting the discovery. (https://www.elitetrader.com/et/threads/the-renaissance-technologies-model-has-been-resolved.379028/) So, having reached the state of the art, I can demonstrate the "market resolution." In complex systems, given their complexity, making predictions is extremely difficult and cannot be done consistently because there are too many influencing dynamics, and one does not have omniscient knowledge and direct control over the main dynamics. People play in markets because they see things happening and think they can exploit determinism, but unfortunately, no one can win. This is why liquidity providers/market makers earn tens of billions a year in a masterful and systematic way. The failure of LTCM stems from the simple fact that every financial asset is an individual complex system. Pair trading gives the illusion of being able to win because you make many gains, but then you'll have to give everything back in one operation or a series of operations. What differentiates modern independent liquidity providers is that they profit from volatility and do so by structuring a fractal grip on the entire market, and given the information asymmetry of the knowledge monopoly they possess, they earn tens of billions that people play in the markets. The information asymmetry of the knowledge monopoly, therefore "the secret of Renaissance Technologies and others," is that no one can win, and people don't even ask themselves how many billions are lost playing this game. There are singularities that profit, but there are explanations that I wrote a month ago on Reddit, which I will elaborate on later in this thread. People play due to personality disorders, biases, and various fallacies. But the main cause comes from personality disorders that I will explore in upcoming posts. So, the way to prevent these subjects from profiting is to not play this game or to transform into liquidity providers. Their work is useful as they lower micro-medium-high volatility as they operate at all scales with different sizes. On Wikipedia, we can read that volatility in the 1980s had already been attributed to market makers by some studies. Taleb says that one doesn't know what they're talking about when discussing volatility. Wikipedia: https://en.wikipedia.org/wiki/Volatility_(finance) We could define it as a dynamic of uncertainty in the complex system, so the system continues to seek its equilibrium and thus its fair value. Liquidity providers use advanced execution algorithms optimized for their task; in the demonstration, I will only perform openings and closings. Yesterday, the demonstration would have been exceptional as there was good volatility with the S&P500 losing 1%. With about 600 medium-frequency operations, there was an 82% win rate and an average gain per operation of 0.36%. Now I'm still deciding whether to show more operations or fewer, but I think I will increase to show about 2/3k operations. The demonstration will therefore take place tomorrow at the opening of the American stock market on https://forecast.altervista.org Initially, the demonstration was to take place on CRUDE OIL, S&P500, and 10-year T-bond, but to make a better demonstration, I decided to do it on the entire basket of S&P500 stocks. I have no certainties, but perhaps we could subsequently witness a paradigm shift regarding volatility. But it is sufficient that people understand that it is not possible to predict the future and therefore avoid executing useless speculative or hedging operations. The resolution is a deterministic fact as there is a deterministic reason that led me to look in the right directions even when I didn't have an "in-depth" knowledge of chaos theory. Pollock drew fractals a decade before chaos theory began to be formulated. Chaos theory is a vast field, and it took me 3 months to study it in depth, so it's not something trivial, given that along with quantum physics and the theory of relativity, they are classified as the 3 best discoveries of modern science.
Small demo of what it will look like. Still need to fix some small bugs. And by tomorrow everything will be ready.
OP, interesting posts on Twitter I am not sure if you are aware that most of the usual residents on this forum are day-trading gamblers. If you want to know them they gather themselves here: https://www.elitetrader.com/et/threads/es-journal-2023-2024.371508/page-1285#post-6029567 Your theories won't attract many of them.
Looks complicated enough OP, compliments on the demo results! So do you need $10 million to start this setup? How much capital do you intend to start with?
Good morning, I apologize, but I need to postpone the demonstration by one day as some bugs have been difficult to resolve and have therefore taken more time than expected. preview medium frequency
If there's a demonstration, it's because one no longer wants to keep a "secret." Moreover, there's no secret at all since everything is in plain sight for everyone to see. One just needs to investigate a bit and look carefully. The reason for LTCM's failure is clear, as mentioned: every financial asset is a complex system in itself. Furthermore, pair trading is detrimental for many reasons and brings no benefit. Liquidity providers/market makers do provide some benefits by reducing spreads and making markets less volatile. However, every speculative or hedging move is wrong, so the losses end up in the pockets of market makers/liquidity providers. @TopKoreanTrader It's not necessary to start with $10M; even $50k is enough if operating at high frequencies. The ultimate goal is to create a multi-day strategy that can lead to returns of 40-120% per year for large portfolios.
Sorry, but I had to postpone again because of bugs. This is a preview from today with operations lasting an average of 30 minutes. As you can see the financial markets are completely modeled by big independent liquidity providers like rentech, tgs, quadrature, citadel.