Climbing Alone to the Top Floor, Gazing to the End of the World: Why I Chose Quantitative Trading

Chinese

In the summer of 2023, I started my full-time quantitative trading career.

The Situation

The employed laborers in capitalist society are humble, and the life of a worker is a life of alienation. From the beginning, the job search process has little to do with personal ambitions and abilities. Instead, it is a process of seeking endorsements. An ordinary programmer must first obtain a good diploma, preferably a 985/211 bachelor’s degree, and then continue to take postgraduate entrance examinations/study abroad to complete “gold-plating”. The main purpose is to sell more money in the job market, and finally enter a big company and get the endorsement of a “big factory”, as if everything is fine. This traditional path of “learning in literature and martial arts, bringing goods to the imperial family” is not only a spiritual imprint of the Chinese people for thousands of years, but also a practical need for the operation of capitalist society. It is effective when supplemented by carefully designed social policies.

What did workers gain during this process? In essence, the relationship between workers and labor is alienated, and the workers’ own self-worth and personal pursuits are also subordinated to the interests of others. Even leaving aside the high-level spiritual aspect, on the material level, workers only get some scraps - in the past 10 years, my country’s disposable income accounted for less than 45% of GDP, which is far lower than the world’s mainstream level. The hidden tax burden is even more terrifying. Land finance and state-owned enterprise monopoly operations have transferred a large amount of current and future wealth, making the already difficult life of workers even worse.

If you consider your future retirement life, the situation is also worrying. In a market environment where demand for intellectual jobs exceeds supply and college graduates are cheap, easy to use and plentiful, high-paying jobs for middle-aged workers appear to be in jeopardy. After losing your job, your income will drop to zero, but you won’t be unable to put food on the table. The key is how to maintain debts such as mortgages, car loans, and children’s education? As for the further retirement stage, with the serious problem of population aging, medical insurance accounts and social security accounts will soon fall into the dilemma of being unable to make ends meet, and they can only rely on government funding to survive - essentially, it is still a problem of the decline in the old-age ratio. What kind of life can ordinary migrant workers enjoy in that future?

A tough but natural decision

I used to work as a programmer at Baidu, and I spent roughly 12 hours a day. My pre-tax income was base 25k, and after-tax income was 19k. After deducting commuting and food costs, the monthly balance was 15k, which is about ¥60/hr. Uncertainty regarding bonuses is relatively high. My ambition is to pursue personal growth and gain more freedom. After carefully evaluating the future cash flow of working as a programmer in a large factory based on the current situation, I decided that this path could not realize my ambition, so I quit my job and started a self-operated quantitative trading business.

When it comes to quantification, most people’s first reaction is huge capital, inscrutable mathematical theories, endless roaring servers, and one person is hitting the stone with an egg. But I think the micro size is also where the opportunities lie. The annual operating costs of a small private equity firm are at least several million. To cover these costs with a management fee of 2%, a management scale of at least hundreds of millions is required. This volume of capital transactions itself will have an impact on the market, and the work goal of institutional researchers must be to develop effective strategies under this volume. In investment strategies, high returns, low risks and large capacity cannot be achieved at the same time. Institutions and small funds are not on the same track. Under the current mainstream quantitative investment theory, arbitrage with small funds is more convenient, and the expected rate of return must be higher. Individual investors do not have regulatory pressure or performance appraisal pressure, which is also different from institutions.

The debate between individual quantification and institutional quantification was mentioned earlier. I believe that the more direct and essential source of profit for professional investors is to establish a comparative advantage over ordinary retail investors. I can use computer technology to collect and process massive data, and use advanced algorithm models to find arbitrage space. In the past few years, my focus on quantification, as well as the theory and practice of machine learning, can help me build data and technical advantages. The current trading volume in the A-share market is mainly contributed by retail investors, most of whom do not have data analysis capabilities. A large amount of data analysis shows that there are many short-term irrational pricings. In the early stage, I should develop an A-share high-frequency day trading model for statistical arbitrage, and in the medium and long term, join the digital currency market to enhance strategic diversity.

Admittedly, this plan also faces huge challenges. First, the arbitrage space is gradually narrowing. On an annual basis, the A-share market was in chaos before 2015. Even the simplest quantitative strategy can record excess annualized returns of more than 40%. Since 2017, quantitative power has become more and more powerful, and top private equity can still maintain an annual excess of about 20%. However, the overall trend shows that the excess space is continuously compressed and the time is tight. Secondly, when I join this lonely business, do I have the execution ability to make a profitable prototype and keep iterating? How do I maintain self-discipline and face external doubts in the process? How to establish connection with society?

Even though we are facing various challenges, my judgment is that we are still on the right path. At the current stage, I have no debts and can accept failure. At most, I can go the old way of studying and working.

Implementation

Self-discipline

• Working hours and environment: isolate the entertainment/work environment and use the external environment to promote self-discipline
• Time management: Regular review and summary, plan next step of work, plan daily work focus
• Energy management: fitness and sleep management
• Information management: high-quality information input system, regular information output

Social Identity and Influence

• Socialize effectively
• Build a personal brand
• Output content externally through blog posts and self-media

Build a Feedback Loop

Trial and error at low cost, iterate quickly, and establish a real-time feedback mechanism:

• Strategy operation monitoring
• Number of article reads and subscriptions