Crystal Ball Trading Game

A couple of things stand right out here: a) There's almost no time horizon here, so it's basically day trading. It's not enough to know what happens, everyone else needs to "do the right thing" in a short time horizon. As the article says, that doesn't happen a lot. b) WSJ isn't as good a new source as it used to be, which makes the game harder. Though occasionally, something big will happen and a one day lookback would be helpful. (Say, shorting airline stocks before 9/11...)

The trick for most people is don&#x27;t trade ever until you have great insight. Better to SP500 it until that happens. Don&#x27;t data mine.<p>A good headline for trading is rare, think disasters, election wins maybe. Interest rate changes.<p>Better would be insider info (not insider trading). You work somewhere so you sussed out their sauce but to the market it is yet another company. Pre or soon after IPO is best.

It&#x27;s an interesting article but if you had five extremely experienced traders and you used historical events (and supplying them with enormous memory prompting by giving them headlines from financially important events like CPI, interest rate releases), chances are they can remember a huge amount of the results.

For anyone worried about markets being at all-time highs, and have cash sitting on the side lines waiting for a dip to jump in, it&#x27;s better that you enter the market rather than waiting—and this is true even if you had a crystal ball and knew when the dip would occur:<p>* <a href="https:&#x2F;&#x2F;ofdollarsanddata.com&#x2F;even-god-couldnt-beat-dollar-cost-averaging&#x2F;" rel="nofollow">https:&#x2F;&#x2F;ofdollarsanddata.com&#x2F;even-god-couldnt-beat-dollar-co...</a>

Well that was kinda fun. Turned $1M into $4.5M, mostly just from a few big bets then playing it safe otherwise. Of course in real life I’m 100% index funds since unfortunately I don’t get tomorrows news.

Wait, so in the challenge, you don&#x27;t get to know what date it is? It&#x27;s an odd challenge as I&#x27;m playing it right now and I don&#x27;t know the zeitgeist of the time.<p>I&#x27;m currently looking at a front page and am just wondering: is it 2008?<p>Purely having knowledge from a day in advance without any other context, yea that&#x27;s hard. IRL, we also have context.

I tried this game multiple times, but it kept bugging: I made 2.3 M after a few trades, but then the &quot;trade&quot; button just stopped working. I&#x27;m on Vivaldi, so maybe that affected something.

The title and opening conclusions are misleading, and the true conclusion is straightforward: *Financial news is mostly noise.* You would need a good filter to make use of it.<p>A <i>crystal ball</i> showing slightly+ reliable price data, at a reasonable interval in the future. (E.g, minutes+) would make a competent person astoundingly wealthy.

I don&#x27;t trade so my comment is low value speculation, but it&#x27;s more about what a crystal ball is.<p>revealing the future doesn&#x27;t give free insight into the dynamics that produced it, and you don&#x27;t need to know the future to identify where a dynamic among factors or parties may be in play.

“Perhaps this overuse of leverage is explained by” it’s explained by it being a silly little toy game. This experiment goes way differently if you use the one page business section of The Economist. WSJ front page is going to be literal clickbait.

This is a fun read!<p>I think something interesting about the news and its supposedly predictive power is that the market already discount the news.<p>If you look at the daily and weekly charts for SP500, it has been on a bill run, for a bunch of unknowable factors but I suspect one of them is the expected rate cut from the fed. Now, if the cut was, for example 50 bsp, instead of 25 that would be news indeed, but the again, last rate cut the prices jump sharply exactly at 1 PM EST, meaning that computers, not humans, read the report and placed hundreds of orders in milliseconds after the report was released.<p>IMHO knowing the future 1 day ahead is not enough because in that timeframe the market has already discounted the news.

I did a similar proctored digital coin toss type experiment at uni back in the dark ages.<p>In the proctored experiment the best <i>rate</i> of pay was achieved by those who just skipped trading for each of the 15 days and left after 2 minutes with $50 in their back pocket.<p>I would like to see the payout distribution graph with random trades for comparison against the students.

One thing I don&#x27;t see anyone mentioning, is that there is a big consensus factor at play too, which adds a bunch of randomness to news outcomes.<p>Take interest rates for example: Lowering rates means that money will be cheaper (good!) but that the fed see&#x27;s slower economic times ahead(bad!). So now you need to put the decision on context, which adds a whole host of assumptions and estimates. Both sides have a strong logical argument for stocks moving up or down.<p>So you end up with traders voting with their dollars once the news drops, and it is not (practically) possible to know which group has more firing power going into the print.<p>It&#x27;s also not uncommon for a stock to tank the moment the news drops, and then skyrocket seconds later (or the inverse). Competing theories and the winner is whoever has more money to move the stock.

Elliott Wave Theory one of the most used&#x2F;followed technical market tools posits that price movements are determined by social mood and not by news. So it should be hard to win based on front page fundamentals. That said I came through the game with a 50% profit overall by mostly going long stocks and long bonds with consistent 5x leverage. If you have a winning edge then you can use Kelly betting to size bets and maximize gains, but it&#x27;s easy to overbet and go bust. One approach is to increase leverage after a win and reduce it after a loss, and you end up near the optimum leverage.<p><a href="https:&#x2F;&#x2F;www.elliottwave.com&#x2F;education&#x2F;" rel="nofollow">https:&#x2F;&#x2F;www.elliottwave.com&#x2F;education&#x2F;</a>

Played the game (from 1M to 2.3M, a batting (?) average of 63.64%). Played big three times: one a big loss, twice a big win. Takeaway from the game: feels a bit like lottery (although I was relatively confident thrice, I was wrong one of those).

Could this mostly be due to a “sell on the news” phenomenon?<p>Stocks go up on rumors but don’t do much or go down a little when something is confirmed.

Seems clickbaity: the selected dates are pretty weird. If you just maintain 1x long, you end up down ~5% overall. Obviously, there&#x27;s hefty volatility in the days they selected, but I&#x27;m surprised that the vol averages out down given that the last decade was quite positive on average.

Read the post. It said that people trade in the wrong direction the majority of the time. So played the game with the strategy that I’d go 50x leverage long or short in the opposite direction to my initial hunch upon reading the headlines.<p>Ended up with a 1000% return. Just need a time machine now.

What you need is a crystal ball for price (which Citadel etc has), not crystal ball for other information.

Why is there no time horizon and why only trade the S&amp;P? What is the trading time? What are you using?<p>This is clickbait to harvest emails. I don&#x27;t see anything to suggest it is correct. Show price histories next to the headlines.

Note that this article is written by a company selling an index-fund alternative, and thus, they carry an incentive to diminish active investing. However, this thought experiment is still enjoyable.

The reason this is the case is that in most cases, simply knowing the direction of some news event is not enough to predict the reaction in a stock. If only it was so simple, linear and one dimensional.<p>Generally the reaction of a stock has about a dozen inputs ranging from other market participants expectations, macro&#x2F;rates, broader market, politics, etc.<p>On other participants expectations alone..<p>You might see a news story like &quot;Apple ships record number of iPads&quot; and go wow great, I should have bought Apple yesterday. But you don&#x27;t know what other participants expected in terms of number of iPads shipped.<p>Further, you don&#x27;t know what metric of Apples earnings report that other participants were tracking most closely. What if it was gross margin on iPads sold, and while the units sold went up.. it was all in a newer lower end priced model that dragged down overall margin in the segment?<p>Further what other news did you miss - what if in some parallel dimension of this game, there was a news story on page 5 about MSFT&#x2F;GOOG shipping a truly competent iPad competitor.<p>Or what if what other investors respond to is some aside comment made on the earnings call regarding an expected slowdown in services revenue?

either we hugged it to death or the future doesn&#x27;t work in firefox

a real world version of this experiment: from time to time there is a hacking case where a criminal group steals earnings reports from companies before they are made public. some of these conspiracies have been quite profitable, but i believe all of them had at least a few trades go against them.<p>a more extreme &quot;crystal ball&quot; were certain life insurance policies written by the French insurance company Aviva. They allowed customers to purchase shares today at last week&#x27;s prices. This sounds incredibly stupid, but that&#x27;s what the contract said, although the insurance company would like to get out of it. The legal battles have dragged on for a couple decades at this point.

What in the world?!<p>&gt; The average payout was just $51.62 (a gain of just 3.2%), which is statistically indistinguishable from breaking even.<p>Yeah, it&#x27;s not statistically significant because (1) the experiment was stupid small: &quot;118 young adults&quot; And (2) the participants didn&#x27;t have to care: &quot;each participant $50&quot;. With (3) no choice of instruments &quot;trading the S&amp;P 500 stock market index and a 30-year US Treasury bond futures contract&quot;. And (4) randomly chosen 15 days.<p>Still furthermore the experiment was made stupid tough: (5) the participants are students and (6) had to allocate bets for 15 events and up to 50 times leverage - and that is very difficult to do equally for newcomers and established investors who have not deliberately worked on the issue of bet size and allocation. (See The missing billionaires - A guide to better financial decisions, Victor Haghani and James White, 2023 - excellent book on that topic)<p>What in the world?? That&#x27;s a lot of trouble to go to for one cheap marketing headline. With zero applicability to the real world (except as cheap marketing headline and also: studying bet size &#x2F; allocation is good advice for would be investor.)<p>Indeed, they themselves recognize the thing in their conclusion: more thoughtful and experienced people did great - although perhaps still not significant because they managed to ask only 5 of them...

So if I understand it<p>First you must be right.<p>Second you must be right while others are wrong (or no-one will take the other side).<p>Third you must <i>believe </i> enough to bet big.<p>Fourth you must bet big.<p>Fifth, you must have been right at step one.

The point of the market is not for you to do better than anyone else. The point is to price things right so that the market as a whole makes money. By picking stocks, you&#x27;re either a gambling monkey or a more conservative gambling monkey.

It should be fairly simple to feed an AI all WSJ headlines&#x2F;articles and day-to-day stock values for the last 20 years, and have it recommend trades each morning.<p>I expect it would does better than average.<p>I also expect similar thing are already running.