Since quantitative trading can achieve cumulative returns as long as it is repeated continuously, isn't it very similar to a "money printing machine"? Why haven't I found such people around me, and some people even doubt whether quantitative trading is reliable? To answer this question, we need to analyze the profit-making process of quantitative trading in more detail.
In the field of low-frequency quantitative trading, making profits is not an easy thing. First of all, the winning rate of quantitative trading that tracks trends is usually not high. It often faces stop losses or even continuous stop losses, and it needs to face the long-term capital curve without new highs and a large retracement of holding profits. This profit process is uncertain and cannot be as stable as a money printing machine. Trading strategies such as grid trading and Martin strategies that have systemic risks cannot be used under any circumstances. They make traders feel more like money printing machines during the oscillating market period, but they may give up all the previous profits at the moment when the trend comes, or even lose all the principal. It is difficult for a trader with incomplete knowledge to effectively execute quantitative strategies, and it is even more difficult for a trader without confidence to execute firmly.
Let's take a look at high-frequency quantitative trading, which is difficult for individuals to participate in. It is also very difficult to make a profit. First of all, the profit of this kind of trading depends on the liquidity of the market. The profit space is very small, so the cost control requirements are very high. Sometimes a slight change in the handling fee will cause the original profit to be lost. For traders with small capital, the handling fee given by the exchange may be high, and they cannot compete with traders with large capital at all. The money earned by high-frequency trading is like the "service fee" for providing liquidity to the exchange. Secondly, because high-frequency trading requires fast speed, it also requires a lot of financial resources in the construction of equipment, networks, and systems, and also faces huge competition costs, so a large number of high-frequency trading companies are eliminated in the competition. Occasionally, a high-frequency trading institution with huge profits stands out, but we don't see what price it paid behind this profit and what unknown risks it took.
Many people who have never traded will compare the stock market to a casino. Perhaps they are the ones who have mastered the "truth". Trading and even quantitative trading are not "money printing machine mode", but "gambling mode". The difference is that compared with pure probability gambling, traders can improve their expectations by improving their cognition.
As long as it is a "gambling mode", its core thinking is probability. When entering a transaction, it is unknown whether it can really make a profit. It is just looking for a time and direction with the highest probability to enter. As time goes by, this guess can slowly become a reality. If it is profitable, stop profit, and if it is loss, stop loss. But even if this order is profitable, it cannot guarantee that the next order will be profitable. It is also possible that from a larger time level, these two orders are just a large-cycle position oscillation.
As long as you have not exited this market, you cannot be sure whether you will be the final winner or loser. This requires us to plan for failure before planning for victory, and be prepared to stay in this market no matter how you fail, so that there is a possibility of turning around, and finally make enough money and retreat bravely.