Jim Simons is one of the most successful hedge fund managers in history. He is a trained mathematician and the founder of Renaissance Technologies. Its hedge fund specializes in a diversified trading system, using individual quantitative models obtained from statistical analyzes of historical price data. Jim Simons was a professor of mathematics from 1968 to 1978 and chairman of the mathematics department at Stony Brook University. It began in the hedge fund industry in 1982. Its current net worth is approximately $ 23.5 billion.
How good his fund is at making money: Since 1988, its flagship fund, Medallion, has generated an average annual return of 66%, with trading profits of over $ 100 billion. No one in the world of investment is approaching. Warren Buffett, George Soros, Peter Lynch, Steve Cohen, and Ray Dalio fail.
5 lessons on trading and investing from Jim Simons:
Quantify your edge by backtesting.
“We look at historical data, looking for anomalous patterns that we would not expect to appear at random,” he said.
Checking past historical price data can give you an advantage in trading current price actions. Markets are traded and invested by people with emotions and opinions who create models. Pricing patterns can be repeated, learn to find a way to trade these models with an advantage.
Trade your system with discipline.
Once you have created a trading system, you need to trade it according to the discipline. No trading system will work if it is not followed long enough to be playable and profitable. All systems have failures, even those used by the Medallion fund, all traders have moments when they want to cancel their trading plan, even Jim Simons has done it several times. In the long run, any profitable trade requires discipline.
Trade a diverse watchlist for more options.
“We have three criteria: If it is traded publicly, if it is liquid enough and can be modeled, we trade it.” – Jim Simon
Be open to searching for trading signals in all classes of liquid assets. As a side note, avoid illiquid stocks, options, futures and cryptocurrencies.
Trading different types of signals on a diversified list of markets, stocks and currencies that are well-tested can increase your chances of making money in different market environments.
You don’t need a lot of recognition to make big profits.
“We’re right 50.75 percent of the time… but we’re 100 percent right 50.75 percent of the time .. You can make billions this way. “-‘ ‘The man who solved the market’ ’
Jim Simons’ models didn’t need a high profit margin to make money. If you have a risk / reward ratio of 1: 2 or 1: 3, you can make big profits as long as you don’t have big losses.
Example of risk / reward 1: 2 with 50% profit:
$ 100 + $ 100 + $ 100 + $ 100 + $ 100- $ 50- $ 50- $ 50- $ 50- $ 50 = $ 250 profit
Example of risk / reward 1: 3 with 50% profit:
$ 150 + $ 150 + $ 150 + $ 150 + $ 150- $ 50- $ 50- $ 50- $ 50- $ 50 = $ 500 profit
The scale and frequency of both profits and losses determine profitability, not just the degree of profit.
There are universal principles of profitable trade.
“The things we do will not go away. We can have bad years, sometimes we can have a terrible year. But the principles we have found are valid. “- Jim Simons
No trading system works all the time in every market, but the principles of profitable trading remain valid. Profitable trading comes down to math, math of risk management, math of position to avoid the risk of ruin, modeling a trading system with a positive expected duration, along with reducing losses and releasing winners.
The biggest lesson from Jim Simons is that profitable trading is based on the basics of math, but one must have the discipline to follow math without allowing bad emotions to rule out a good system.
Junior Trader Mert Mustafa