Cat Brother Technical Post (2): Anti-Quantitative Strategies

Tomorrow is the weekend. Here’s something for friends to read when they have free time. [Taogu Ba]

1. Introduction
   Reluctantly, my second technical post is about counter-quantitative strategies instead of sharing my seasoned, conventional trading techniques.

The reason is that Brother Cat has realized that whether it’s hot money or retail investors, everyone invests money and emotions, even risking everything, fighting daily in this market. Although there are wins and losses, over time, the final outcome is likely to be harvested by quant strategies.

There’s also a regret I need to share: every era has its way of getting rich quickly, but using short-term trading to achieve financial freedom is a thing of the past. Since quantitative trading scaled up, that era has ended. You’re late—by only five or six years—but the rapid development and iteration of AI and computing power make it feel like a thousand years in the blink of an eye.

The advantages and disadvantages of quant strategies versus humans are obvious here; much information is available. However, some friends still lack reverence for quant strategies. That’s because the name “quantitative” sounds like a technical term. If I change its name, it might not sound so benign—Anti-Human Strategy Enemy Program.

Yes, it’s a program specifically designed against human trading habits and patterns, equipped with self-learning from all historical data and self-iterating with the latest data.

To some extent, it can be understood as unbeatable. Because if it could be beaten, it wouldn’t exist. Its existence means it’s unbeatable. Even if it’s beaten at a certain moment, it evolves into a new “it” in the next moment, becoming unbeatable again. So, the “it” that exists at this moment is the unbeatable “it.”

Why say “to some extent” and not “absolutely”?

Because they are limited by domain and dimension; they are only unbeatable within their controlled fields. The goal is to avoid the “absolute domain.”

2. Counter-quantitative Strategies
   (1) Strategy One: Abandon Short-term Trading, Embrace Medium-Long Term
   Logic: Quant strategies only exist in the trading world; they cannot control the growth of high-quality companies in the real world. Companies are organizations formed by people fulfilling their roles. The essence of a high-quality company is the collective strength of this organization. The growth of a company in the real world is fundamentally based on human consensus and recognition of this collective strength. Therefore, the future value increase driven by the growth of high-quality companies is human-related and future-oriented, which quant cannot predict or learn at present.

This future attribute projection into the trading world is called medium to long-term, not short-term. For example, a stock is currently 10 yuan, and three years later, it’s 20 yuan. During these three years, quant strategies can harvest from human traders daily, but their current strategy isn’t “recognize this stock as high-quality, aiming for a threefold increase in three years while short-term trading to harvest humans.”

Quant mainly profits from market liquidity and emotional volatility. If you don’t watch the market or trade, the “jumping up and down” on intraday charts won’t cause any real damage. As long as the company’s performance continues to grow, all short-term fluctuations will eventually be smoothed out. Time is a friend to humans but an enemy to quant (high-frequency strategies).

Humans should choose stocks with solid fundamentals and long-term growth logic, buy and hold long-term, ignoring intraday volatility.

Return to the most primitive and pure dimension of investment trading.

Abandon the short-term trading techniques refined over years, give up the obsession that a little more effort will lead to enlightenment, and return to the original you who first started trading, choosing only high-quality companies.

But you are no longer that “you” who just started.

Quant strategies have self-learning and iteration capabilities. Humans also progress through a spiral ascent.

After absorbing Darwin’s theory of evolution, Marx concluded that the historical development of things follows a spiral upward pattern. In fact, everything in the universe follows this law—our entire solar system orbits in a spiral. Even DNA sequences in biology are arranged in a spiral.

Trading techniques also follow this law. When you first start trading, you seek future value, but at that time, you know nothing. Later, you shift to harvesting short-term fluctuations. You learn a lot but still fail repeatedly. When you return to seeking future value, you are no longer the clueless “you.”

In two dimensions, you circle back to the starting point; in three dimensions, you spiral upward; in four dimensions, you are constantly moving in a spiral upward over time. You are an ever-improving “you.”

Time is the fourth dimension. When you are in the four-dimensional realm, time becomes your friend, enabling you to defeat the quant strategies in the three-dimensional world. Quant is unbeatable at a specific moment but lacks time attributes.

Therefore, “abandon short-term, embrace medium-long term” essentially means stepping out of the three-dimensional world into the four-dimensional world. The variable added from three to four dimensions is time.

(2) Strategy Two: Contrarian Trading, Sniping Convergence
Why do humans turn the stock market into short-term trading, especially in the big A-shares market? Because short-term trading confirms a cultural attribute of our civilization—“divide and unite, unite and divide”—a process that has lasted for five thousand years. Despite the constant division and unification, all foreign cultures have been sinicized through this process. Chinese culture will not be obliterated; it will absorb, fuse, and progress—another spiral upward.

Quant strategies are based on studying and targeting human behavioral data. Human behavior is driven by culture, which is deeply ingrained in bones and cannot be transferred or changed by individual will. Therefore, the focus of quant strategies remains unchanged as long as the main market participants’ behavior doesn’t change.

As this develops, quant strategies tend to become more similar—converge.

What is convergence? For example, retail investors tend to chase gains and sell on dips—that’s their convergence.

Quant strategies also have their convergence. For instance, when many models adopt similar “breakout buy” or “moving average stop-loss” strategies, they resonate. When the stock price breaks below a key level, all models simultaneously issue sell signals, causing a stampede. Even quant strategies can’t foresee how low it will go because this low is a resonance of many models. This creates opportunities for humans.

This is easy to understand: convergence means “behavioral commonality.”

As long as the human tendency to chase gains and sell on dips remains unchanged, quant harvesting strategies will learn to target that behavior, leading to similar strategies with behavioral commonality.

Quant’s convergence and resonance are now so exaggerated and obvious. The largest-cap stocks in the A-share market, with over 2 trillion market cap, can drop directly to the limit down from a high open. The power of convergence in the market is approaching its extreme.

What you need to do is: when prices spike due to quant selling, look for support levels to buy low; when prices surge due to quant buying, and volume can’t sustain it, sell high.

It’s still the concept of “buy on divergence, sell on consensus,” but a perceptive you will understand that the four-dimensional situation has changed—the concept has spiraled upward.

In summary:
Quant profits from “trading opponents,” while you should profit from “company growth.” Competing in different dimensions is the best countermeasure.
By exploiting the convergence and resonance of quant strategies, high valuation bubbles and undervalued zones will form, allowing for contrarian sniper trades within these zones. Praying mantis catches cicada, the oriole is behind.