How can I convince my cryptobro friend that S&P500 is efficient?

post by AhmedNeedsATherapist · 2024-12-04T20:04:44.521Z · LW · GW · No comments

This is a question post.

Contents

  Answers
    9 TheCookieLab
    2 lsusr
    2 sapphire
None
No comments

Just to clarify, we are both high schoolers. No one is at risk of losing a bunch of money here :)

I have a friend who's fascinated by cryptocurrency trading, especially with recent events like crypto going up. He doesn't actually invest in crypto though (that would be illegal). But he does spend a lot of time running trading simulations of the S&P500 using simple strategies (Claude's wording of this post described it as "things like setting buy/sell limits based on moving averages that could be implemented with basic Python code").

I want to convey the idea of market efficiency to him, but his unintuition is unintuitive to me. I don't know what building blocks he would need to understand market efficiency.

1. 
How do you develop an intuition for why strategies that look good after-the-fact might not actually be good a priori? Do I bother explaining overfitting, for instance?

2. 
How do I communicate that PhDs with way more computer resources are going to "eat up" any market inefficiency? How do I convince him that this isn't theoretical nonsense?

3. There seems to be something fundamental about market efficiency that's hard to grasp until you've developed certain intuitions - like understanding that you can't simply exploit a market inefficiency to generate unbounded returns, even with unbounded capital. How does one develop these intuitions?

4. Should I even try to discourage this? Perhaps paper trading in this way, even if it's just peering at noise, has educational value? On the contrary, peering at noise seems to neither discourage gamblers nor provide substantial educational value for them.

This post co-written by Claude. The original draft from Claude is viewable here.

Answers

No comments

Comments sorted by top scores.