“Market efficiency” is a useful model but one shouldn’t confuse it with reality.
Where exactly does the market efficiency (er, inexploitability (by me or my friend (when we use simple strategies))) model detach from reality? Can we find an expectation that we disagree on?
The existence of people like your friend are why the market looks efficient to people like you.
Less serious response: Paper trading doesn't normally affect market prices.
More serious response: Why did you say the market looks efficient to people like me instead of saying that it is efficient relative to people like me? I can't identify market strategies that work (and I expect that he can't either). More specifically, I expect that strategies that are readily available to the either of us can't be used by the either of us to make substantial profit, but they might be exploitable by e.g. a computer with immediate access to the price of an S&P500.
The market isnt efficient. Which isn't to say it is easy to beat. Your friends strategies don't sound promising. It also seems strange to me he is obsessed with crypto and thinks it will do well but isn't a crypto investor. Sounds pretty inconsistent with his beliefs.
It's worth remembering many versions of ',,the market is efficient' are almost or totally unfalsifiable.
It also seems strange to me he is obsessed with crypto and thinks it will do well but isn't a crypto investor. Sounds pretty inconsistent with his beliefs.
It's illegal, as mentioned in the post.
It's worth remembering many versions of ',,the market is efficient' are almost or totally unfalsifiable.
Why? The market being mostly efficient relative to my friend seems easily falsifiable, if he makes a bunch of money trading on the stock market. Then, well hooray! theory falsified. On the other hand, if my theory is that the market is inefficient relative to my f...
I upvoted your post and I'm really confused why other people downvoted your post, it seems very reasonable.
I recently wrote "ARC-AGI is a genuine AGI test but o3 cheated :(" and it got downvoted to death too. (If you look at December 21 from All Posts, my post was the only one with negative votes, everyone else got positive votes haha.)
My guess is an important factor is to avoid strong language, especially in the title. You described your friend as a "Cryptobro," and I described OpenAI's o3 as "cheating."
In hindsight, "cheating" was an inaccurate description for o3, and "Cryptobro" might be an inaccurate description of your friend.
Happy holidays :)
Just to clarify, we are both high schoolers. No one is at risk of losing a bunch of money here :)
I have a friend who's fascinated by cryptocurrency trading, especially with recent events like crypto going up. He doesn't actually invest in crypto though (that would be illegal). But he does spend a lot of time running trading simulations of the S&P500 using simple strategies (Claude's wording of this post described it as "things like setting buy/sell limits based on moving averages that could be implemented with basic Python code").
I want to convey the idea of market efficiency to him, but his unintuition is unintuitive to me. I don't know what building blocks he would need to understand market efficiency.
1.
How do you develop an intuition for why strategies that look good after-the-fact might not actually be good a priori? Do I bother explaining overfitting, for instance?
2.
How do I communicate that PhDs with way more computer resources are going to "eat up" any market inefficiency? How do I convince him that this isn't theoretical nonsense?
3. There seems to be something fundamental about market efficiency that's hard to grasp until you've developed certain intuitions - like understanding that you can't simply exploit a market inefficiency to generate unbounded returns, even with unbounded capital. How does one develop these intuitions?
4. Should I even try to discourage this? Perhaps paper trading in this way, even if it's just peering at noise, has educational value? On the contrary, peering at noise seems to neither discourage gamblers nor provide substantial educational value for them.
This post co-written by Claude. The original draft from Claude is viewable here.