(this is part 3 of the Algo-Trading Journey series)

In an economic downturn, both rich and poor are equally hit... BUT... the rich can fire their expenses, and the poor cannot.

Economic Modelling

Best models come from deep insight and research.

This means your algo/code is only the amplifier of you and not a replacement of you.

Also, the biggest opportunities and profits come from the biggest shifts (either crashes or booms).

Therefore, it's important to understand the fundamental relationships in the economy.

Especially the ones that are not very intuitive and/or spark deep emotions. Because those are the ones most likely to be misunderstood, and hence, there's your opportunity.

Rich vs. Poor Dynamic

This is my favorite quote:

Assumption is the mother of all f-ups :)

People just assume that the rich handle the recession better because they have money. And sure, that helps...

...BUT...

...the rich are even more exposed to the changes in the economy:

• they have bigger obligations & expenses
• revenue immediately drops as customers spend less
• clients cancel their contracts
• and they are left with this huge overhead

Plus, this overhead is unsolvable.

It's not like the rich can get a second or third job and make up for the lost millions in revenue.

And even if the funding was provided from personal accounts, this too would melt quickly. And the rich would quickly become poor.

The stack really seems stacked against the rich.

So how come (despite all of this) they always come on top?

Rich Superpower

The rich have one superpower: they can fire their expenses, i.e. YOU.

And you, on the other hand:

• can't fire your mortgage
• can't fire your car payments
• can't fire your credit cards
• etc.

So, in a way, the full weight of the recession is carried by the working class.

This is kinda ironic because

• when the times are good, most profits go to the businesses
• and when the times are bad, most losses go to the workers

Why is this important?

As a market participant (trader), your (and my) job is not to protest or try to change how things are.

Instead, it's to use market realities to your own advantage.

For example...

Once you accept this reality, you can make informed investment decisions.

If you were to invest in companies or sectors that sell to the rich, you know their revenues will not fall. Because the rich were not affected.

On the other hand, if you invest in businesses that sell to the poor, you know their revenues will suffer.

There are always exceptions to this rule, e.g., alcohol sales during recessions. Which is sad because, at a time when people need their mental faculties the most, they choose to numb their minds and fall into problems even further.

Long story short: you need to do your research for every investment decision and stack these deep insights into an unstoppable profit machine.

Let this be the first in your stack :)

Poor Strategy

This is not related to algo-trading, but I figured I could put it in since I'm on this topic.

The poor can have at least 1-month buffer in cash (before the recession). So whatever happens, there's at least some buffer where it's not pure panic 1 day after getting fired or something.

The second thing is to have some kind of side income that is independent of their job.

Even if that income is 20% of your full salary will make a great difference once you lose your job.

This was actually one of the reasons I went into algo trading. Because even in the IT sector, it's not all roses and sunshine. And getting a job is hard these days.

So the question is, when are you going to do something about it?

Are you going to try to start a business once you're fired? Or build something while the times are calm and prepare for the storm?

What's Next?

I plan to post my progress here on dev.to because I find it fun... and I enjoy it.

If you want to join me on this journey, then I suggest you:

• follow my profile for more updates
• bookmark this article for future reference
• and like this post, so more people can see it

Now let's go and conquer the market :)

Will

P.S. here are some cool resources:

1. Best Programming Language For Finance
2. (FREE) AI For Finance Tutorial
3. Starter Code For Bot Building