Round 2: Practical trading methods and mindsets learned from great investors – James Simmons (2)

Episode 2: James Simons (2)

“Using computer programs created by hundreds of PhDs from various fields”

Do you know a trader named James Simons?He held positions as a mathematics professor at both Harvard University and MIT,

became a trader in his 40s, and in the fund he started in 1982,
he massively hired PhDs in mathematics, physics, information theory, astronomy—fields without a traditional finance background,
and is said to trade based on complex quantitative models.

For details, see the previous article below↓
https://www.gogojungle.co.jp/finance/navi/40/78

James Simons rarely speaks about his methods, but in an interview he said the following.

“We use computer programs created by hundreds of PhDs working together.”

If you think about it, that’s quite a remarkable statement.
Please imagine this as well.
You start a trading company and recruit people.
Then, on the phone, someone says,
“I’ve been trading FX for 20 years, and I’m interested in your company.”
Wouldn’t your spirits rise?
If you were to collaborate with this caller, you’d feel your company could make a lot of money,
and your heart would race with anticipation.

But for James Simons, such a person would be out of the question;
he hires people who are strong in mathematics and physics.
As a result, over nearly 30 years, he has achieved an average return of about 40%.
（Warren Buffett’s track record is about 23% average return over 53 years）

■ Why he succeeded without hiring people with financial industry experience

What James Simons valued as important differed from that of ordinary people.
Contemplating that may be the first step toward triggering high-performance returns for you.

I believe James Simons valued these two things.
What do you think?

1. Do not value investment experience
(Obviously. Yet it’s an unusual and important idea.)

2. Properly capture the market and candlesticks with quantitative models (measurement models)

As a supplement, Simons’ fund constructs its trading logic around item 2 and trades mechanically.

(Details are in the previous article.)

With this mindset, what can be said?
It is this:

“Even if you are losing now, accumulating trading experience will someday make you win”
is a big mistake to believe.

If you pursue trading with that mindset,
you will be eclipsed by traders who think in terms of appropriate quantitative models.
The direction of your effort is wrong.

■ Individual investors cannot imitate a professional environment
That said,
“Then hire mathematicians or physicists.”
“Then build quantitative models.”
Even so, you’ll quickly realize that it’s not easy.

Because professionals spend money and time to do this, and it's difficult for individuals to imitate.

As a salaryman, you must trade late at night with sleepy eyes,
or trade while taking care of your family.

So what can individual investors do in such circumstances?
Here are two methods.

■ Prepare a proper trading logic and trade like a robot

The first is to prepare a proper trading logic.

Valuing quantitative models over experience means
you prioritize the trading logic over your own experience or intuition.

Rather than a statistically significant logic built from your intuition alone,
you should adopt logic that has been tested and constructed by many people and experts.

There are many paid and free logics available.
I won’t introduce a specific logic here, but
there might be logics that can win even for free.
（Winning for free is very rare, though。）

?

The second is to trade like a robot oneself.

Of course you can use EA (Expert Advisor), but
since building one from scratch is difficult,
it is quicker to trade according to the logic yourself.

Here’s one tip for trading like a robot.

“Don’t think, ‘I want to make money fast and a lot.’”
Do not harbor that mindset.

This mindset keeps money-related fear and anger in your subconscious, causing you to prioritize the urge to earn over the logic.
Focus on the trading itself and trade with a clear mind.

To be continued in Episode 3

Writer: Yusuke Kuroda
Profile: FX information product trader. While working as a salaryman, I became free from money anxiety through FX and binary options.
Blog: FX Information Product Trader – Verification Review Site