A Paradigm Shift for Hedge Funds?

by: Douglas Roberts Dimick

I recently read a website listing of a proprietary trading program developer position for one with an "intuitive grasp of how quantitative models can be integrated into fundamental environments to give traders the edge…"

In 2001, following years of private equity experience and being introduced to how E=mc^2 may apply to public securities markets, I commenced my self-education of stock trading programs. I utilized Tradestation.com as well as Internet-based research of physics and stochastic disciplines. My objective was to know the securities exchange markets.

In his Cave Theory of Knowledge, Plato identifies two forms of knowing: world of generalities and world of particulars. "Quant" methodology popularized during recent years, as I conclude from my research, addresses matters of particulars concerning the "spectrum of mathematical techniques geared towards dynamical and data-driven environments."

Yet that sought-after "intuitive grasp" appears to be less academic or experiential and more so connective to relativity concerning time and space of trade and valuation. Hence, one may derive potential applications of the Theory of Relativity.

Therefore, securities market automated relativity trading (or SMART) represents a paradigm shift in program emphasis from determinative statistical and mathematical analyses to their integration based on prescribed (or rule-based) energy convergence and equivocation formulations. Consider a reported finding by two MIT theorists; their research concluded that optimized programs had not failed during recently publicized (quant fund) losses but simply did not factor in non-programmed corresponding market (sell-off) anomalies. Is that deduction actually evidencing that quantitative frameworks require inductive integration?

I posit that, yes, as quantitative programs model prospective strategies, market exchanges represent behavioral transference and, consequently, are objectified by indicators and functions localizing the status of neural (i.e., psychological) profiles and networks. In summary, quantified particulars of any market exchange – as a human endeavor – are, by definition, correlative to the generalities of relative mass and velocity of position, trending, and environment; whereby, practical application then becomes strategic modeling of symbiotic placement and concordance.

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