How This $13 Book Changed My Trading Forever

0:00This book right here is one of my top favorite trading books in history of time. It's called the man who solved the market. How Jim Simons watched launch the quant revolution. In fact, I got to meet with and talk with Gregory Zuckerman, the author of this, the New York and a Wall Street Journal reporter who wrote this. I love this book because it shows you in a way what it takes to find a trading plan that works mathematically speaking it works. You have a positive edge and then how to implement it. Now what's this is more of a story book. It's actually wonderful and audible. I love it so much on audible. In fact, I just listened to it in January. This is February now. I just listened to it about a month ago. Now we're going to watch this video called how this $13 book changed my trading forever and I got to take he's going to be talking about how he became somewhat of a quant trader because of what's in this book. That's where you need to get to as well. Have the data to pursue the fact that you have everything you need at your fingertips to be successful in the markets. No trust me, bros, no, this is going to work or this should be different this time, etc. Have the data to work in your favor. Let's watch this together.

1:08This $13 book made me an accidental quant trader. I'm not trying to sell you this book, but it changed my trading forever. It's the reason I decided to abandon discretionary trading for good. And it was 13. Yeah, you must abandon discretionary trading for good. In reality, what is discretionary trading as I pour myself a cup of coffee over here? discretionary trading is exactly, hey, I like this stock. I'm going to buy it. You have no justification. No reason. You looked at all fundamentals and you're like, yeah, okay, make sense. I should buy it, right? Or you can have everything in the world mathematically shown historically. This has an edge. I'm going to continue what already has an edge moving forward. Totally different lifestyles, totally different trading results. That's all it cost me. And the lessons inside have made me hundreds of thousands of dollars. And to be honest, I've never given it the credit deserves. Now, what's the actual book I'm talking about? Well, it's the man who solved the market. It's the story of Jim Simon's the mathematician who beat Wall Street for 30 straight years using nothing but data. Now, I actually stumbled across it around a year into my trading journey when I was still doing the whole discretionary thing.

2:16I was drawing support systems lines. I was trying to fill the market and I was trusting my God over when I finished, which is a dangerous combination. Trusting your gut. You got to trust it. You would listen about this. Name some instances. I'm asking for your participation in the chat. Name some instances where trusting your gut makes absolutely no sense whatsoever. Maybe like working on a car, right? Well, I think it's the alternator. Let me just go replace the alternator. Well, that wasn't it. Oh, I think it's the radiator. Let me go replace the radio. Oh, that's not it. I think it's the timing belt. Let me replace the time belt. Oh, that wasn't it. Or you could say based on XYZ based on the symptoms based on the history based on the things that I have found in the past and others have found before me. I know that it is exactly the water pump. Right. It doesn't make any sense at all. Like flying a plane. I can't say it. Right. You don't trust your gut. Like, okay, here we go. Like, imagine I get into a plane. I get in the cockpit seat. And I'm like, all right, let's do this thing.

3:30Click, click, click, click, click, click, you know, and boom, just explodes on the runway. Right. That's exactly what would happen. Or brain surgery, right. We don't walk into brain surgery, trusting your gut. But people want to put their entire life savings on the line and trust their gut. What am I missing here? I know what I'm not missing is extra zeros in my bank account. Those people are, that's for sure. Let's keep going. Reading the book, it completely opened my eyes to one key thing that the market can be solved to a data and not intuition. And overall, the book introduced this is exactly how outlier, it fundamentally works. The market can be solved with data, not intuition. Now, I want you all to save this video and come back to it years from now, because this is our goal at outlier. Right. Our goal at outlier is to take over the world. Our goal at outlier is to make sure that you have everything you could possibly need at your fingertips to be successful in the stock market. And there's no gut feeling about it. All the data. We want to be just like Jim Simon's at Renaissance technology. That's exactly what we're trying to do.

4:33Just me quantitative trading. Now, fast forward. I'm now six years into trading and I am primarily fully automated. So now we're of McTrader. And a lot of what got me here traces back to the principles in this book. So in this video, I'm going to break down the six lessons from the man who beat the market for 30 years using data lessons that completely reshaped how I trade and how I think about trading is a business. But first, let me tell you a bit about Jim Simon's because here's the thing most people didn't realize Jim Simon's wasn't always a corner. He actually started trading purely discretionary, just like the most of us, his first trading venture. Right. And if you want to become world class at anything, you can't do what normal people do. That's what Jim Simon's figured out. He wanted to be a world class trader and he said, you know what? I'm not going to do what the normal people are doing. I'm not going to do what the masses are doing, what the herd is doing. I'm going to be different. And because of that, he figured out a way to trade with the market. Now, again, not every trades a winner. In fact, he said he won about 50% of the time, but that 50% of the time, he had a higher expectancy than the most anybody out there.

5:36But he worked for a while, but it was got wrenching and inconsistent. And if that sounds familiar, it definitely does at least to me for my earlier years. Here's actually him talking about his experience in the early years trading discretionary. If you're doing fundamental trading, one morning you come in, you feel like a genius. You know, your positions are all your way and you think, God, I'm really smart. And look at all the money I made overnight. Then the next day you come in and they're going to get you and you feel like an idiot. We were pretty good at it, but it just didn't seem to be a way to live your life. In 1988, I decided it's going to be 100% models. And it has been ever since. So once he decided to go fully model base, the results speak themselves. His funds, Renaissance technologies, produced an average annual return of 66% before fees. There's a lot of therapy jokers here, the Reddit people who've never traded before in their lives. 66% what a joke. I don't even get out of bed if I'm not going to make 66% today. That's the funny part, right? The internet trolls who don't have any idea how to be successful.

6:41Yes, they do. You just buy the dip, bro, because it always goes up. 66% returns over 30 years is an unbelievable returns. If you understand how the market works and you see 66% returns, you will also be like, holy moly, that's crazy. And their fees are huge. Their fees are monstrous, enormous, tremendous. 66% returns. And all of this was through using data to make trained decisions, not opinions, not feelings, just data. So now we know who he is. Let's get into these six lessons from the first one. Hopefully you see it coming, but it's data obsession in the early days, Simon's literally sent people to the Federal Reserve to manually copy data by hand. While other traders were reading new stickers and watching the news, Renaissance was collecting decades of clean data that nobody else had.

7:42Here's a quick clip of him reciting the story. And bringing in data, data. In those days, we sent gals down to the New York Federal Reserve to copy histories of interest rate numbers. They didn't exist in the 70s. You couldn't go and buy data and those were certainly not online deliveries of all this stuff. This edge alone was worth billions. And the focus on data at the time was generally groundbreaking. It got to the point where one person became fully dedicated just to the collection and cleaning of some of the idea by hand. Now obviously that grew into a huge team over the years. Originally the objective was very simple. Social patterns and the data that gave even the slightest edge. And they tested everything data. This is a small part from the book where you can see they tested hundreds of financial metrics. They did even social media feeds. Obviously later into the years, not, you know, when they started and pretty much anything that can be quantified and tested. They really didn't care how weird that data was. If it had predicted power, they used it. Now for us, retail traders, we obviously don't have the resources. Right as the technology said, but the principle still holds your edge starts with data clean tested and verified data. And you do actually have one sort of advantage compared to them in the old days.

8:43Nowadays data is very accessible. You can download data. You can go to APIs. However, keep that in mind. It's opened because it is so accessible. A couple of things can happen. First, you get overwhelmed with data, right? That's probably happened to you. But that's one of the things that we have tried to do with outlier, right? If we pull up this is a sandisk, let's go back to sofa, right? Looking up in the top right hand corner, you can add a glance. See, this is a horrible no good very bad stock. This is a horrible no good very bad stock. Right. You've got the market. You've got the sector and you've got the stock. I'll built into one. Now it does have one great thing going for it. It doesn't have any overhead order blocks right here, right? There are no overhead order blocks for a long way, literally 10 entire dollars is about to be a $17 stock, by the way. So that's how we try to simplify it. But also outlier is like a cockpit panel and a jet fighter, right? Everything you're going to need to know is all right here all in front of you.

9:43But how do we simplify that all our nine. So to a double edge sword, right? On one hand, all the data in the world is fantastic if you know to do with it. On the other hand, if you don't know what to do with it, it can be an overwhelming amount and it can be a huge distraction. But you don't need you need to focus in all your plan. So more people, there's going to be more competition, but that doesn't mean you can't be successful using data still most of funds nowadays of quantum funds and at least from my own experience becoming systematic was a lot easier than being discretionary. Just because discretion takes years and years and years of intuition and you'll never really know if you actually have a bullet proof edge, whereas in data, I can clearly look at my back tests and my own robust testing and say this has a particular edge. Yeah, that's a big deal, right? That's a huge deal. In fact, let me pull this up here. Being able, I got to close this one and leave this one. Okay, we just had bingo, by the way, by the time we're recording this. And Rob won a coupzy in bingo. Congratulations to Rob. So here is my back testing data for plan M are most aggressive plan. I haven't broken down my sector. I can do you how many average days I would hold the trade. How many trades were tested over 7,000 in total average the number of wins the average win number losses average loss and the win rate our expectancy is a formula.

10:55It's your average win times your average win percent. I'm sorry, your win rate times your average win percent. And then you subtract out your loss rate and times your average loss percent that gives you expectancy. Now we did got to take that one step further because if you have like five trees on and you have a huge expectancy, that's not really an edge in the market because you don't have enough frequency. So you take your expectancy in percentage terms and then you multiply that by the total trades that gives you your frequency. That is what outcome means that's how some of these can have an outcome of over 4,000% like financials. And some of these can have an outcome of 300% right this is 1.86% on the mathematical edge times the number frequency is only 174. This has a 282 expectancy so a whole percentage point higher and it has 1400 instances so nearly 10 times as many.

11:55That's why you can have a enormous outcome versus a small outcome while they both have an edge right it's frequency times edge. Now the second key lesson is lavishly use the models once they went 100% systematic in the late 1980s. Simons had a very strict rule you follow what the model says no matter how smart or dumb it might seem in the moment. No rights no second guessing now to be fair because I always see this anytime I mentioned. Now I think this is a really important point one of the traders that I learned from was a market wizard named Larry height. He's still around but he's he's getting really up there. What Larry height taught me specifically was if you don't follow your plan. If you deviate from your plan even by one Iota one tiny little oh I'm going to take it this time oh I'm not going to just take my stop loss here. Oh I'm going to I'm going to fudge it for this reason or another you never had a plan to be in with. Because the back test that you proved actually had a positive edge and a huge outcome just got thrown out the window.

13:00Because any sort of fudging any sort of manipulation in the plan is not shown in this data. So your expectancy your outcome has nothing to do with what you're doing because you can't follow the rules that you set in order to create this plan. That is so incredibly important no overrides no second guessing if you're going to follow the plan you got to follow the plan but there are times when you need to modify the plan right. Let's say you just came off the back of a losing streak you need to take a look at your losing trades and you say okay of these trades what characteristics happened. For us in late 2025 we had simultaneously a whole bunch of financials and a whole bunch of energy trades every financial trade one every energy trade lost. So on the outside it's like well I'm never going to trade energy again. Why is there actually a flaw in the plan or was it just a string of bad luck so one thing I noticed was that the oil price was turning down at that time.

14:02So I thought you know what maybe there's a correlation here if the price of oil is going down does that mean that my trades should be excluded or maybe some other indicator added to them. While the price of oil is going down for energy trades only because the price of oil overrides a lot of things. What I actually found was while the price of oil is going down my expectancy on those trades is actually higher. That totally surprised me so what I found was it wasn't a flaw in the plan is just a string of bad luck which is totally part of having the plan in the first place. This episode is brought to you by Indeed. Stop waiting around for the perfect candidate. Instead use Indeed sponsor jobs to find the right people with the right skills fast. It's a simple way to make sure your listing is the first candidate see. According to Indeed data, sponsor jobs have four times more applicants than non-sponsored jobs.

15:03So go build your dream team today with Indeed. Get a $75 sponsor job credit at Indeed.com slash podcast. Terms and conditions apply. Spring is here and the shopping list is long. Time to make a lows run. Buy three bags, get three free. Stay green, one cubic foot garden soil. Plus right now members can earn four times the points on an eligible purchase. Start spring off strong with these deals and more. Our best lineup is here at Loves. Balance the 325 while supplies last soil offer excludes the last and who I loyalty program subject to terms and conditions. See those comms last terms for details subject to change point booster subject to exclusions and more terms apply. One time only offer means you got to fly and you got to change it or sometimes means. Yeah, bad luck. You got to build looseers in in the system. Mission this around him silence. He did override his models twice once during the dot con bust and once during the quantum quick. Now some people view this as a floor. They can. He can't fix his model. So why should we take advice of it? But I would like to challenge any of you to trade a system for 30 years without overriding their model.

16:06This is a incredibly daunting cost and most people would have done it hundreds of times. And especially because I know a lot of new system actuators. Most people override the model within the first week. Right. And what he's talking about here is being normal. Right. If you want to be world class at anything, you can't be normal. It's great is that outlier does a lot of this work for you automatically. Right. And because it does it automatically, it makes it a lot easier to be a world class trader for just 82 cents a day. So the fact he only did it twice in 30 years tells you everything you need to know about him and his discipline. And this is the hardest lesson really for most traders because you will be sitting there. Your model is telling you to take a trade and everything in your body is screaming no. All the model just stays flat and you want to get in for example, that is the battle of being systematic and algorithmic as a trader. And ultimately the answer should always be the same. You're going to trade using models. You just slavishly use the models you do whatever the hell it says and that's how smart or dumb you might think it is at that moment. And that turned out to be a wonderful. Now lesson free is infrastructure investments while other funds focus solely on strategy.

17:08Simons obsessively build world class computing and execution systems. This allowed his teams to focus on research and not fighting with technology limitations. This is something I see so many traders over look they spend all the time on strategy development. But their execution is manual their back testing is very sloppy and their infrastructure is held together with tape infrastructure itself can be an edge. If your systems execute faster more reliably with fewer errors than someone else running the same strategy. Ultimately you win. It's not glamorous, but it does definitely matter. Now some of you might be thinking well, that's too daunting to have all of this infrastructure. Of course, I'm not saying you need to build your own market making infrastructure and connect lines directly to the exchange. But having better back tests, you know, auditing your own execution so you don't have to manual facing those trades. So there's less errors, there's less human prone errors as well. That is part of infrastructure as well, which gives you an. So one thing that we are planning on is called the strategy library inside of outlier. So and this doesn't exist yet, but it is something we're building. It's going to be like a one click button. You're going to see all the strategies that we have proven to have positive expectancy light up on the page.

18:08And some of them are going to say an entry day. Some are going to say exit days. Some are going to say sit and cash don't have up kind of day. And then we're going to ask for you to help us come up with strategies, but they have to prove. And we at outlier are going to make a model so that you can prove mathematically speaking your strategy works. Whatever that case is, right? Because not everybody wants to play trade plan. I'm not everybody wants to trade plan ETF. And that's totally fine. But you do need to find a plan that has a positive edge and has positive expectancy. So this is going to be super fun, right? And photo has a great point right here. Photos says, that's the hardest thing for me. I want to get in and do something. And I need to sit on my hands and trust my time will come. That's what's great about sitting and cash not effing up, especially now that we have SGOV. You're getting paid to sitting cash not do anything. Is it the most? No, it pays about 4% APY right now. But it allows you to not lose 5% in a single day on something like SoFi.

19:09It allows you to not lose 3.5% in a single day on a garbage stock like Netflix. Remember when Netflix like only went up, now Netflix only goes down, right? It allows you to not lose 3% in a single day on something like Coinbase. Sitting and cash is the most defensive play possible when there's nothing else to do. When there's nothing else to do, don't do anything. Sitting cash and not eff up means sitting cash and don't screw up your portfolio. Let's say you built it up to $100,000. Well, like FOTA saying, he's really struggling with what to do in the meantime. Well, there may be a time where you don't do anything for weeks or months. In fact, talking to Mark Minervini, who won the US Investing Championship twice, he said the luckiest thing that he had was trade set up because for him. And the interview is on our channel. Just go over to playlists and go to the Champion Trader Series. For him, he said that he's just going to sit and cash the entire year if nothing sets up.

20:11And that's how you need to maintain your your mental edge as well. Look, when there's nothing to do like right now at the time of that recording, I haven't traded a few weeks and I might not trade it in a few weeks in the future. I'm totally cool with that because I'm earning interest in Escov. I'm not effing up my portfolio because if like I said with FOTA, he's built it up to $100,000. And then he gets that temptation of, oh, man, I really want to do something. Oh, no, I want to do something. And then when he finally has the opportunity to trade, it's now down to $85,000. All right, so he's negative compounded against himself. And that's hard. Dude, I get it. But remember, FOTA, if you want to be successful at trading, you can't be normal. For everybody watching, if you want to be successful at trading, you can't be normal. Because being normal is what happens to 90% of traders who build up 90% of their accounts in the first 90 days of trading. We don't want that for you. We want you to be an ally. And by the way, if you're enjoying this and you want to actually build your first live hour in 2026,

21:11check out the crypto. Um, this is a crypto guy. So we're going to skip over his, his crypto pitch here. Explore new markets. Simon's had a quote that I love. If it's publicly traded, liquid and amenable tomorrow, we trade it. Here's the full context around that thing. Starting in those areas that I mentioned, currencies, financial instruments, gradually moving to stocks and finally to anything that moved. Well, it had to be, uh, tradable. Had to be liquid. We were always liquid. But now, unlike discretion traders who get emotionally attached to one specific market, Renaissance technologies only care about one thing. Do we have alpha? Exactly. Do not. Look at any situation, any market and say, uh, it's all the same, right? It's all the same. No. In fact, deep thought mentioned this earlier about right here, except healthcare. We don't trade that guy. If that guy, exactly. Because healthcare actually had negative expectancy.

22:13So there are not 11 sectors on here. There are only 10 because every single way that we put healthcare into our plan, it brought it down. It made it worse. Why? Because instances like this can happen and did happen VKTX. There's a healthcare stock where it happened today. I saw the headline about I remember what stock it was. If you remember, tell me overnight, overnight, they had news come out that nobody expected about their GLP weight loss drive overnight. The stock gap down 40%. This was not an earnings announcement. This was an unexpected news announcement. And because this sector can have unexpected news announcements happen quite a lot. You can get absolutely monkey hammered in V.O. So I'm seeing in the chat. You can get absolutely monkey hammered by doing nothing. Right? Right here. In V.O., you woke up this morning. You're down 15%. They had news come out.

23:13What was the news? Obesity drug trial fell short. 23% weight loss versus... Okay, let's break. This is the exact reason. Hear me out. You want to know why you should avoid healthcare at all costs? This is exactly why. No vote nor discs. Obesity drug trial fell short. It showed a 23% weight loss versus Eli Lilly's 25%. So the stock fell 15% at that moment. The results were great, but not great enough. 15% gone. Dude, headline risk. And I'm ignoring everything that Stephanie says. Because she and Chad the tattoo artist got a thing going on. And I'm not getting involved in that. Let's keep going. If it had enough data and liquidity, they would trade it. And this is something I've applied in my own trading. I trade futures, cryptos, equities. I really don't care what the market is. I care about whether my data tells me there's an edge that I can exploit. And the more diversification you have, the better you can take advantage

24:15of what is considered the Holy Grail in trading. The more low correlation strategies you run, the better, because you get higher risk adjusted returns. If you need more context about that, feel free to check out my video about the Holy Grail in trading, which goes over how redalio, one of the biggest hedge fund managers in the world, explains it. Now, lesson number five. This is also super important, large sample sizes. So going back to this, right? If we only had, let's say, 20 trades in each sector, this is not a robust back test, not a robust back test. Because we don't have enough frequency to make sure that this actually works. So we have hundreds in all instances, hundreds, multiple hundreds in all instances except for staples. For some reason, there wasn't a lot of staples. Probably because staples is a defensive sector, and it only goes up. Oh, I shouldn't say only. It likes to perform best when the market is moving down. But even staples has a huge positive edge, right? And you're not looking for thousands of percents on your expectancy. You're just looking for a positive edge. Because if you had, let's say you had a quarter, right?

25:16And for every time you flipped it, let's choose actual numbers here. For every time you flipped it, if it lands on heads, you win $8. If it lands on tails, you lose $4. So there's two to one right there. And you can flip that quarter, and 54% of the time it's going to win. So you have a two to one risk to return. And it's going to land on heads more than 50% of the time. You need to flip that until your thumb breaks off of your hand because you have flipped it so many times. Now, understanding, you're not going to win every time. In fact, you may lose 10 times in a row. Because just like winning is an unavoidable consequence of trading. Losing is an unavoidable consequence in trading. So you have to embrace the losses and understand that when you have an edge, all you got to do is just throw more occurrences at that edge.

26:17If it is large sample size, data wasn't just vital for discovering alpha. It was crucial for verification. Because Simon's understood something that most traders ignored. The law of large numbers, with sufficient samples, results converge to the true expected value. Here's him quickly explaining it. You're looking for anomalies. You're looking for, like you said, the efficient market hypothesis. But any one anomaly might need us to random thing. So is the secret here to just look at multiple strange anomalies and see when they align? Well, any one anomaly might be a random thing. However, if you have an update, you can tell that it's not. You can see it in an anomaly that's persisted for a sufficiently long time. So the probability of it being random is not high. This is why back testing on 20 trades means nothing. This is why if you... I totally agree. You say, you know, it worked last week means absolutely nothing. You need large sample sizes to know if you're seeing something that is actually real or just noise. And this is one of the biggest mistakes I see traders make. They test a strategy on a tiny sample. They see good results. They go live. And then they wonder... And this, this recency of this hindsight bias is what's taken out people in Palantir.

27:18Oh, remember when Palantir was so great a few months ago? So if I buy the dip, then it's just going to be so great again, right? As it's fallen by how much? Let me remove all my notes here. As Palantir has fallen from its all-time highs to now, down 40%. Remember when Robinhood and SoFi only went up, right? That hindsight bias? Now, Robinhood is down over 40% since the cell signal and outlier came through. Let me show you that real quick. All right. And I would imagine that 82 cents a day that you would have paid for outlier for the annual pass is definitely worth it when you see 43% of your investment evaporate. All right. You cannot look at a stock at any point in time and say, well, it did this in the past. It was real good then. It's going to be real good now without a sufficient number of data without a sufficient sample size.

28:19Because yeah, of course anybody can look back at a stock at any point in time. Be like, oh, look, it went up. How about open door? Oh, look, it went up bigly in September, August timeframe. It's going to do it again, right? As it's down 20% since the cell signal came through. I don't know why it falls apart. You just didn't have enough data to actually verify. And most of the time. And yes, junior, that was. Thank you. I forget that button's there. Thank you so much. People put way too much significance on results that aren't actually significance. For example, if you do a back test on 20 trades and it says you're going to do 100% returns each year, I can already tell you that's not going to happen. You have 20 trades. It's not enough to actually say if that's truly predictive. If you had in 2000, 5000 trades and you had a solid back testing infrastructure and then it said that same result. That's something I could more believe, but obviously you'd still see how it works on life. Now lesson number six is the system is always leaking. Even the best edges decay over time. Markets change edges get crowded and what worked last year might not work next year.

29:20Simon's understood this deeply, which is why continuous research was so valuable. Renaissance technologies. It kept them ahead while other fun sell behind. And this is also why he was such a big advocate for collaboration within the fund. It broke creativity and curiosity. Nobody rested on past results. And this applies to all of us. The markets are not static. Your research really shouldn't be either. I have many profitable strategy at the moment. I constantly researching new ways I can improve them or new edges I can exploit that may be shorter term inefficiencies. But that can add some returns to portfolio. So if you're still trading based on got feelings and intuition. I really hope this video opened your eyes the same way it opened mine when I first read this book. I love it. That was that was honestly a really great book. And I do some video. I approve. Now listen, if you're ready to save time make money and start winning buzzers. Click one of these two videos. Have a fantastic day.