I gave up working on being a forex trader so I could work on being a quant. If I had more time, I would work on both, but I only have time for one of them.
I don’t think being a forex trader is better or worse than being a quant. I think I can succeed in either one as long as I put in the time and hard work. I know I’ll get more out of being a quant than being a forex trader.
If I succeed in joining a hedge fund like Resnaissance Technologies or creating my own hedge fund, it will be a rewarding and meaningful experience to work with brilliant minds on a mission to build trading systems with advanced math and computers.
If I fail, I’ll still end up with the math and coding skills I can apply to other fields like data analytics, software development, or even forex trading if I want to.
This passage in chapter 8 from The Man Who Solved the Market sealed the deal for me to stop working on forex trading altogether:
Until then, Simons and his colleagues hadn’t spent too much time wondering why their growing collection of algorithms predicted prices so presciently. They were scientists and mathematicians, not analysts or economists. If certain signals produced results that were statistically significant, that was enough to include them in the trading model.
“I don’t know why planets orbit the sun,” Simons told a colleague, suggesting one didn’t spend too much time figuring out why the market’s patterns existed. “That doesn’t mean I can’t predict them.”
Still, the returns were piling up so fast, it was getting a bit absurd. Medallion soared over 25 percent just in June 1994, on its way to a 71 percent surge that year, results that even Simons described as “simply remarkable.” Even more impressive: The gains came in a year the Federal Reserve surprised investors by hiking interest rates repeatedly, leading to deep losses for many investors.
The Renaissance team was curious by nature, as were many of its investors. They couldn’t help wonder what the heck was going on. If Medallion was emerging as a big winner in most of its trades, who was on the other side suffering the losses?
Over time, Simons came to the conclusion that the losers probably weren’t those who trade infrequently, such as buy-and-hold individual investors, or even the “treasurer of a multinational corporation,” who adjusts her portfolio of foreign currencies every once in a while, to suit her company’s needs, as Simons told his investors.
Instead, it seemed Renaissance was exploiting the foibles and faults of fellow speculators, both big and small.
“The manager of a global hedge fund who is guessing on a frequent basis the direction of the French bond market may be a more exploitable participant,” Simons said.
Laufer had a slightly different explanation for their heady returns. When Patterson came to him, curious about the source of the money they were raking in, Laufer pointed to a different set of traders infamous for both their excessive trading and overconfidence when it came to predicting the direction of the market.
“It’s a lot of dentists,” Laufer said.
Retail traders like those dentists are at a disadvantage against hedge funds like Renaissance Technologies that use mathematical and statistical models that keep improving along with their algorithms and computers.
If I become a retail trader, I think I don’t stand much of a chance against the quants who can easily exploit my foibles and faults. Since I can’t beat them, I’ll join them.
When I started The School of Pipsology, I thought I might earn a living as a retail forex trader one day. I never imagined I would end up somewhere else. It was a big surprise to me when I chose to be a quant instead.
I thought I had it figured out, but I don’t. I’m still a mystery and a stranger to myself. I’m on my own now as I continue this quixotic quest to be a quant.