Self-Funded Trader---->MFE?

[JesseLevermore]

My question is how would it look for someone who left a decent job to be a full-time self funded trader. Keep in mind I am not implying a gung-ho bull headed get rich scheme. But one in which I do apply financial math techniques and accurately track profit/loss/risk for any given day in my activities.

Would this be good bad or indifferent for an MFE application? I will be applying in the fall and don't want to come off as some sort of hack but I'd like to continue to work toward my goal of being a profitable lone trader/ potential fund manager in the meantime.

 

[Yike Lu]

I'd say a plus, but MFEs are typically more directed towards those looking to switch jobs or looking for one.

 

[JesseLevermore]

I just felt like I may be able to gain more insight on what I may be doing wrong and at the same time become a bit more credible by having an MS from a good institution.

I guess the necessary follow-up question is, does an MFE add real value to ones abilities to pricing/programming/trading or is it only good from the signal perspective. If the latter I suppose I'd be better off even doing an MBA where I would have much more free time to learn on my own as well as the credibility bonus.

 

[Lyosha]

Why do you have to quit your job to invest capital?

 

[JesseLevermore]

Of course I don't have to stop at all, I just want to do what I enjoy doing is all. And most importantly would like to get the ball rolling with what I meant to do with this career path from the onset.

I have enough money that it makes sense and enough support just don't have enough time. It takes too long for me to do research to necessarily do much of anything interesting. I just can't see myself ever being dedicated enough to trading while I am focused on keeping a job.

I guess I'm just one of those people who is all or nothing in terms of motivation.

 

[Yike Lu]

Depends on the MFE. Pricing probably isn't that relevant. Stochastic/programming/risk management/statistics are. So you'd want to lean towards an MFE more oriented to these things vs pricing. There won't be that much stuff with signals (as the old saying goes - those who know don't say, those who say don't know).

Also knowing some of these things can help you avoid some bad decisions.

 

[Lyosha]

Pricing probably isn't that relevant. Stochastic/programming/risk management/statistics are.

I'd probably say the inverse of this minus the risk stuff (if you want to trade u better understand risk)...

At least from a prop perspective. Execution - stochastic optimization is very important.

Programming - if you want to trade systematically is crucial. If you want to hand trade, not that useful...

 

[daleholborow]

If you want to be a profitable LONE trader, who cares what anyone thinks? If you want to be a fund manager, your record will speak for itself, no? Some qualifications might make you look more above board, but think about how many people in general know what an MFE is... if you're doing it for the letters after your name, it may be an expensive method.

Perhaps I am not understanding you correctly, but your question reads more as though you are concerned with appearance, and less with improving your skills if you feel that you are already capable of operating in this field on your own?

As a side note, what does make you think you are ready to embrace full time trading? I know (anecdotally, through friends) of some guys who turned 5 figures quickly into 6... then 6 into 0. Depending on your approach, the business can be brutal to your capital Good luck!

 

[ShinjiOno]

Does MFE really teach you how to trade profitably? If the strategy is profitable, no one is willing to share/ publish, right?

So far, I can't reproduce the result claimed by some technical papers. Maybe it's me that's not creative enough

 

[daleholborow]

I can't reproduce the result claimed by some technical papers.

May I ask which papers? Depending on their age, they may have already been incorporated so heavily into the wider market's operations that it is difficult to use them today to make a profit. For an example of someone who does readily publish their findings, albeit usually after they are no longer overly profitable, you can refer to Ed Thorp, the models of Derman (my life as a quant guy), etc etc.... then you have you Mr Buffets, who for 50 years have been saying "buy quality, cheaply, and dont get caught up in calculus", so you have plenty of options available to you

 

[JesseLevermore]

I'm not under the impression that your record speaks for itself while trying to raise funds. It isn't like trying to work for a bank or prop trading firm where the investment in you as a trader is diversified out over a pool of good trading candidates. People are savvy enough that they want to see appropriate risk measurements and how you can guarantee that their money is safe with you.

I also feel I could genuinely take away knowledge from an MFE program that I wouldn't have otherwise. Not necessarily because I could never make it on my own but because I want to have a strong sense of what is out there and network with the other MS students and perhaps hire/work with them when I have the opportunity.

 

[Andy Nguyen]

I also feel I could genuinely take away knowledge from an MFE program that I wouldn't have otherwise.

It's possible. Just keep in mind that you would need to have a good sense of direction and knowledge you need coming. Many MFE programs have a very inflexible and outdated curriculum which will teach you things you don't need while some give you a pick of the best and more relevant.
Just do your shopping carefully.

 

[Yike Lu]

I'd probably say the inverse of this minus the risk stuff (if you want to trade u better understand risk)...

At least from a prop perspective. Execution - stochastic optimization is very important.

Programming - if you want to trade systematically is crucial. If you want to hand trade, not that useful...

Inverse? You just verified like 2/3 points I made.

 

[pingu]

I'd probably say the inverse of this minus the risk stuff (if you want to trade u better understand risk)...

At least from a prop perspective. Execution - stochastic optimization is very important.

Programming - if you want to trade systematically is crucial. If you want to hand trade, not that useful...

I don't understand. What do you mean exactly? Pricing is important but stochastics and statistics are not? I'm confused between your post and Yike lu's post.

 

[Lyosha]

"Trading" is a broad spectrum of activity. I funded my MFE partially by speculative manual trading, and was answering from the perspective of me at that stage as I thought that is closest to what OP refers to. Both Yike and I are now trading, in different places, in very different manner with different objectives. What is relevant to us now is different amongst each other, and certainly different from what was relevant to me when I was a manual screen trader just trading my own capital.

To a manual screen trader that's not moving around large blocks, stochastic optimization is pretty much useless, as it is most useful in dealing with large block orders on execution desks.

Programming is not very useful, as you're doing everything by hand and if you are trading manually it is doubtful that you have the experience and understanding of markets to create a functional and profitable trading robot/algorithm (this is much more difficult than trading by hand, and carries much more tail risk). And most of everything else that a manual trader has to do can be done in an excel spreadsheet, really.

An understanding of risk is very important.

Optimization was not that important to me because I traded on relatively sparse but very strong views of price movement (this tends to be the case with manual traders - they don't buy and hold complex portfolios), therefore it would have only decreased my profits.

"Pricing" is relevant because even though the Black Scholes formula is wrong and whatnot, it is somewhat right. And I feel that in that subtlety an amateur trader can actually find some alpha.

 

[Yike Lu]

I mean programming as in automation of things that are very inconvenient to do manually (passive/active execution comes to mind). Lyosha is right in that Excel VBA could do it, but that falls under what I mean by programming. I agree with him that you probably won't be creating an algo.

You don't need stochastic optimization true, but I never stated that. My post didn't even have the word optimization in it. Stochastic processes/probability are useful to understand that some things are myths/not a good idea (eg martingale theorem, gambler's ruin, etc) and as a foundation for statistics and risk.

I disagree about pricing and had a different point in the first place. BS you can learn without MFE. Beyond that, exotics, IR derivatives, CDS, MBS, CDO, etc (if a curriculum is heavy on pricing, these will be the bulk), are just explicitly not relevant as you won't be trading them.

 

[zyz]

Interesting discussion.
Is there anybody who is trading Lyosha-style here? What products do you trade? How much time do you invest?