Algorithmic Trading Programs That Will Be Eliminated

Mike Bellafiore of SMB Capital posted a link I thought you might find interesting, particularly if you trade short-term tactics or want to understand a little more about what tactics some quant funds employ.

Entitled “Algorithmic Programs that will be Eliminated,” Mike discusses a specific strategy known as “Buying the New Low” which - as its name suggests - is a strategy that buys new market lows in an attempt to play a mean-reversion tactic as price is expected to snap higher.

Mike makes a bold statement in introducing this tactic:  “Let’s discuss why this program, particularly below significant technical levels has not worked, will never work, and will be eliminated by the market.”

He further notes, “Didn’t firms like yours lose enough money when you tried these tricks when the subprime mortgage mess first hit? Your firms or firms like yours were decimated because you tried to get long very weak stocks when they made new intraday lows and force short term traders to cover (think CFC….oops).”

Also, “…superior math skills absent trading skills will not be rewarded by the market place.”  I was reminded of Long Term Capital Management when I read that statement.

Check out his full post in which he holds no punches for describing what he feels for this strategy and how it can be harmful to those who employ it.

I always love reading posts from Mike and the team at SMB Capital because they freely share their thoughts and experiences of what it’s like to work and trade at a top proprietary trading firm in New York City.

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