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Comment by dkhenry | Hacker News Reader

Not knowing the exact firm I would still debate that its purly mathmatical. _Every_ professional I have talked to has pretty much said that no matter how good your math there is still additional information required other then the raw data about the security.

Also I am talking about trading not market making which can be done automatically, market making only works when you can beat the other guys at making deals and yes you can do that with pure numbers, but again that's not really what were discussing here.

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Algorithmic hedge funds trade on statistical models successfully. I work for one at the moment, and over the long term they expect to make 15-20% per year. We have no traders and there's no intervention - it's purely the statistical model that determines how and when to trade.

So it can be done, but you need a brain the size of a planet. (I don't have a brain the size of a planet, so I don't build the models)

I can confidently predict that no, you won't make 15-20 percent as a long term average, though you may well manage a number of good years in a row. Save while the going is good.

May I ask where your confidence in this prediction comes from?

You comment about needing the brain the size of a planet is what leads off my doubts. Its like people who say that credit swaps are too complex to understand so don't even pay attention to them. Your basically admitting you have no idea whats going on and trying to cover it up by saying its just way to complex to understand

That was a somewhat flippant comment... The guys who build the models have phds in physics plus advanced degrees in statistics and stochastic calculus etc. I understand the basics of how the system works, but due to my lack of that advanced maths education and a certain amount of secrecy I don't have every detail.

So in summary: it is too complex to understand, unless you have a very advanced education in the statistical techniques they use to build the models.

Agree, that always bothers me, hand waving under the guise that it's too complicated to be understood. It may take some time but it can always at minimum be on a high level understood. If it can't then someone is lying or hiding something.

(For example I don't have a PHD in physics but a few years of reading and following up on linear algebra, and I can hold my own in a conversation on sting theory with with a PHD Physicist).

One example, there are many:

These guys certainly knew their stuff, and they also had a system: http://en.wikipedia.org/wiki/Long-Term_Capital_Management

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