Well, in the article he said tat he did not care about direction, he would simple buy when his expected price was up, and sell when down. However, there could have easily been a bias in his model that "preferred" and performed better during upward movements. If so, he got lucky.

Longs and shorts were 50/50 and my program showed no preference for up or down days. High volatility and high volume was what it liked.

I guess the real question is: what was your alpha in that timeframe?

I'm probably showing my ignorance here but what do you mean by alpha? And how is it quantified?

Alpha is how much excess return you had over the market (or risk free return(

E.g. if you made 10% when overall market was up 15% for the year, you have negative alpha. [As someone could have bought index and held it through year to generate better return]

If you made 20% when market was up 10%, you have positive alpha.

That is why everyone in the investment community is 'seeking alpha'.

You don't need a bias to accidentally make money when the market is overall moving up, do you? Picking stocks by throwing darts while blindfolded will, on average, make you money in a market that's moving up.

The problem is he was also selling short. If you pick stocks randomly and randomly pick to buy or sell you shouldn't make money, ever.

You're right, if you're randomly and without bias including short selling then you'd expect to neither make nor lose money, aside from transaction fees.

Great point, here is a chart of the Russel 2000, incredible growth during that period. http://finance.yahoo.com/q/bc?s=%5ERUT&t=5y&l=on&...

That's about 50% gain. Unless he put in $1m that doesn't completely explain his ROI.

Considering he was making 1000-4000 trades per day, I assume he put more than $1M. Trade fees alone would eat a huge chunk of money. The cheapest trade I can find is $3.95 (optionshouse.com).

So the fees will be $3950 - $15,800 per day.

$15,800 - $79,000 per week.

He was trading futures. You need $10K in margin per future. He states somewhere that he started with $30K or so, and I estimate his "margin at risk" at any point was $100K or less.

And he surely wasn't paying retail prices - you can go down to around $0.50/future if you know what you are doing.

(In general, futures have 1:5 to 1:20 leverage)

Ok, at $0.5/future, the fees are

$500 - 2,000 per day

$2,500 - 10,000 per week

$130,000 - $520,000 per year

That's just the fees. He must make that much just to break even. If you can make that much starting with $30K, you're a supermotherfucking genius.

You should look more deeply into how these things work. Let's take the DAX Futures for example (which he was trading). All numbers are in EUR.

One "tick" (minimal movement) is worth 12.5 EUR. At volume you pay 0.5 EUR, IIRC, but let's assume you pay 1 EUR in fees, everything included.

If you bought and sold at the same price, you lost 1 EUR/trade. This is the cost of business.

If you bought, and sold after a favorable 1 tick movement, (e.g. bought at 4013.0 and sold at 4013.5), you're 10.5 EUR richer - 12.5 on the difference, minus 1 for each trade (one buy, one sell).

If you bought and sold after an unfavorable one tick movement (e.g. bought at 4013.5 and sold at 4013.0), you're 14.5 EUR poorer - 12.5 on the difference, and 1 for each trade (one buy one sell).

OP averaged $2/trade over 200,000 trades; that means he had 2/3 right calls, and 1/3 wrong calls or so if he only traded dax and only had 1 tick moves.

He was very smart, but you're looking at it wrong - the fees are the cost of doing business, much like salaries are the cost of producing software. In finance, you rarely care about revenue or "notional" (which can easily run into the trillions per year for a small trader - for ~1 eur, you get 75,000 eur in notional value on the dax).

You just roll the fees up-front into your choices when thinking about it, and it all makes much more sense.

(Not trying to take away from OPs very commendable achievement - just trying to give the common perspective on how to view this)