The First Session: Conducting rapid trades across as many markets as possible is the basic strategy ~ James Simmons ~

Part 1: James Simons

'Trading as fast as possible in as many markets as possible is the essence of the strategy'

Over nearly 30 years, he achieved an average return of about 40% (Warren Buffett's track record is about 23% average return over 53 years).

Recent annual income was

• 2004: $670 million
• 2005: $1.5 billion
• 2006: $1.7 billion
• 2007: $2.8 billion
• 2008: $2.5 billion
• 2009: $2.5 billion
• 2011: $2.1 billion
• 2012: $1.3 billion
• 2013: $2.2 billion

These are the achievements.James Simons.

(Source: https://commons.wikimedia.org/wiki/File%3AJames_Simons_2007.jpg)

He has a background as a mathematics professor at both Harvard University and MIT,

and the fund he established is said to hire a large number of PhD holders in mathematics, physics, information theory, and astronomy without financial backgrounds,

and to trade based on complex quantitative models.

During the financial crisis storm in 2008,

the founders of Quantum Fund George Soros,

James Simons,

John Paulson of Paulson & Co.,

Philip Falcone of Harbinger Capital,

Kenneth Griffin of Citadelwere summoned before the U.S. Congress.(Source: http://blogs.wsj.com/deals/2008/11/13/hedge-funds-on-the-hill-live-blogging-the-hearings/)

James Simons does not talk much about his technique, but

'Trading as fast as possible in as many markets as possible is the essence of the strategy'he said.

How should one face this world of investment where such trading collectives exist, especially in FX?

Let us think about how to confront it.

■ Guerrilla Rainstorms and the Volatility of Candlesticks

In recent years, just as sudden downpours follow clear skies, do you notice more volatility in candlesticks?

If something happens, the dollar may fall below 1 USD/100 JPY, but a few hours later it could be 1 USD/102 JPY.

At worst, the Dow may drop nearly 1000 points in minutes.

Perhaps the HFT algorithms overreact to certain conditions.

■ What is HFT

HFT stands for High-Frequency Trading, a method that makes thousands of trades in very short timeframes, earning large profits.

The fund Simons started excels in HFT, achieving the results seen above.

To actually build HFT, one uses co-location, placing servers near the exchange to minimize latency,

and investments in hardware, network, and infrastructure are crucial.

However, for individual investors to adopt an HFT system,

well... given the scale of operation funds, it is not realistic.

■ The Situation of Individual Investors

As explained in the HFT section,

in the trading world, strategies based on algorithms (quantitative models) crafted by some of the world’s best minds account for more than half of all trades, and for individual investorsthe world’s top minds vs. youis the dynamic, where individual investors are swept along by the big waves of these trades. If governments try to protect you, they rarely guard you specifically; they may intervene in forex to control it, but no one intends to protect you personally. Only your own system, whether free or paid, matters for you.

■ So how should we respond?

No one has a real solution. Therefore, it’s a threat, and individual investors keep losing.

But if you focus on HFT, you can consider the following strategy.

→ Neutralize the effects of ultra-fast trading

In other words, trade away from ultra-fast, short-duration activity, and set profit/loss targets that account for volatile candlestick moves.

Whatever strategy you adopt for the market, remember you are stepping onto a battlefield.

Continued in Part 2

Writer:Yusuke Kuroda
Profile: FX information product trader. While working as an office worker, he freed himself from money worries through FX and binary options.
Blog:FX Information Product Trader Verification Review Site