Register and share your invite link to earn from video plays and referrals.

James Muninn
@Muninn
I share deep dives on traders and strategies
Joined October 2022
210 Following    18.5K Followers
Too many believe 24/7 markets and AI will disrupt and remove retail traders chance to succeed in the market.. I don't agree. On the contrary, I believe the opportunity to generate generational wealth for retail traders has never been bigger! One often used comparision is what happened to poker, when solvers were introduced. For those who don't know poker: a solver is software that works out the the optimal way to play a hand, so that onone can exploit you. Before solvers, online poker was casual players (the fish) losing to full-time grinders (the regs) who won on experience and reads. When solvers showed up, the casual players lost faster and left, the games got much tougher, and a lot of old-school pros who played on intuition quit (went broke). So the comparision being made is that AI is the solver, and the profitable retail trader is the old-school reg about to go broke. But I think the premise is wrong. Poker is man against man. The market isn't. At a poker table everyone plays the same game for the same pot. When the fish go broke and leave, only regs and pros remain, and the money has to come out of each other. But in the market the biggest players aren’t trying to take my money.. An index fund buys every two weeks because 9-5ers deposit their paycheck. A pension fund rebalances because its mandate says so. A company buys back its own stock because the board approved it in March. Market-neutral quant takes no directional bet by design.. I don't think AI will change these market dynamics, and they are a big part of the market. The pod shops and hedge funds have to abide by different rules than we do. They can't move in and out of stocks with market orders like us, cause they are too big. They move in and out of stocks in days and weeks, and that's exactly the accumulation and distribution we use as signals before the breakouts. They have single-name and sector limits which means they can't go all in in one name. That's why sympathy plays exists. A market-neutral pod has to short something for every long they take. Which means they can't be long in every strongest stock in a bull market, and when their shorts squeeze they become forced buyers at the top. If they lose a few percent too much, they lose capital under management. A few more and the PM get's cut. Many are judged by monthly numbers, so a strategy that loses small on most trades and wins big on a few - like the one most of us trades - isnt viable for these players. And they are slow. They have a full process with risk comitees, etc. We don't. A long only fund can't have cash as a position. They buy into strength, and then they have to sell into weakness because they have to meet redemptions. ALL OF THESE ASPECTS AND RULES FORCES THE OTHER PLAYERS TO PLAY THEIR HAND DIFFERENTLY. And that's exactly what we as retail traders exploit. Ask yourself, at it's core, what is a breakout or pullback? As a retail trader I'm not trying to be smarter or out-read anyone. I know that institutions have far better information and data than me. At it's core, what I'm trying to do, is to be early to money that's about to come in. The movement in a breakout happens when the funds, institutions and the slow players come in. If that inflow of money doesn't come in, no setup works. No matter how nice it looked on the chart. If it's coming, a fairly simple process will catch it. That’s why regime and breadth matter more than anything. So, back to the poker analogy - and why it's broken. It's broken because of where the profits comes from. In poker it comes from the worst players. In the market it comes from someone willing to buy higher than us - and that's the pod shops, institutions and passive funds, who play by very different rules and are competing vs each other. And this won't change just because of AI or 24/7 trading. The mechanisms under which it happens might change, but not the where we take our profits from. Poker is also zero-sum minus rake. A rising market isn’t. A solver finds poker’s equilibrium once, because the rules never change. The market’s equilibrium change all the time. When every pod runs the same factor model, the factor decays. HFT goes home flat every night. Quant's are growing the fastest in todays market. But much of it is market neutral. And they are not after swing traders money. And more quants doesnt remove the whale in our market. If anything, it adds one. As retail traders our edge, at it's very core, isn't our setups, risk management, or whatever. It's the fact that noone makes us play a hand we don't want to play. No benchmark, no redemptions, no monthly marks, no risk committee. I can sit in cash for months - atleast theoritcally. With all that said, I do believe AI will change the way we play our game. But for the better for some of us. Just like solvers didn't empty the tables - they split the players into those who studies solvers and those who didnt. The same will happen in retail trading. A new aspiring trader who wanted news and sentiment a few years ago paid for ten services. Now one dashboard built for the job does all of that and flags what changed overnight. Testing an idea that took a quant desk a quarter takes an afternoon. Learning from a great trader meant hundreds of hours of streams. Now I ask the transcripts and get the answer in a minute. There has never been a bigger opportunity to generate generational wealth for those of us who commit.
Show more