The stock market is one of the most lucrative ways to make wealth in the real world. Yet! many struggles with it. But there is one person, a mathematics professor who made billions in the stock market. He is Professor Jim Simons.
Simons got into the stock market with the knowledge he gained in his career through mathematics.
He entered into the stock market with the basic principles of statistics and pattern recognition.
Simons made clear that pattern recognition is one of the most effective ways to make sure that you get more out of the stocks. Pattern recognition is used usually in stock trading, but Simons had a unique way and done it so that many got shocked away by it.
He made it clear that using data that he got through the past 100 years and made a simple pattern recognition and some unique algorithms he designed all over the years and trading with his retail account.
With these unique algo trading methods, he had gained a huge sum of profit in the stock market. The next step he did was hire some of his mathematical colleagues from Berkley University and started his own hedge fund firm, which is now known as Renaissance Capital.
Everyone wondered how did he achieve his success, and what was his algorithm? It is not that straightforward to copy since many parameters are considered to make a successful trade, which is impossible for Simon’s to acknowledge the world with.
So we bisect what his algorithm technique was and how we can achieve a somewhat similar amount of success.
Renaissance capital makes around 41% of the margin every year since 1988, and they have a drawdown like exiting the share with -4.1% of margin. With the recent reports, they have claimed that a profit margin of 70%. This was very promising for a hedge fund firm.
The stock pool they select to invest in is based on how they rank in the mean-reversion mode. With this technique, it can be useful to find what is the volatility of the market. This made him produce 70% in return while carefully looking at the stock’s volatility.
On a personal note, an individual who is about to try this method needs to keep a minimum of 5 stocks and a maximum of 8 stocks in his investment pool. The key is to keep the portfolio as less as possible. This investment pool can be changed with every Q1, Q2, Q3, and Q4 of his fiscal year of investment.
With the mean-reversion technique, we can predict the stocks that are about to perform high in the coming quarter. This data can be used to make good trades, and if you have greater money to spend on the market, the earnings you gain are significant.
Algo trading was invented from Simon’s methods, and in our country, Zerodha has developed an app called Streak to make algo trading possible for the average retail consumers.
If you want to take a deep dive into these kinds of algo trading, make sure that you have sufficient data of the stock exchange, and you can develop your skills in it.
If you’re a programmer you can execute this algorithm with your own stock parameters from research that you’ve made, I would suggest learning Python language to execute your statistical algorithm to predict the market.
I will leave you some videos below for the starting point of it, and you can learn through the ropes.
The simple and easy way to start is Zerodha’s Streak in our current condition. They give you the data and statistical tools to make you a beginner algo trader.
Jim Simons only recruits Ph.D.’s and not those in the stock market or anyone related to Wall Street. So people who is out of Wall Street or Dalal street can take this as an inspiration and start your journey in financial freedom.
If you’re a coder try this video.
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