A lot of people on EliteTrader will beat the market⦠here is why
- Thread starter neutrino
- Start date
May be there is some truth in this. But here is how I look at it. Options trading is a zero sum game, just like poker, which means that it is open to competition and change. The philosophy on which Taleb's strategy is built is not much different than the philosophy on which trend-following is based - that people tend to underestimate the impact (in Taleb's case - the frequency, thanks for the correction) of the change and are wired to bet that things will get back to normal rather than expand in the new direction. In the beginning the application of this concept, which is fundamentally right, resulted in great profits for trend followers, but as more and more competitors entered the field, who could obviously follow the trend against their human nature, the trading landscape changed and applying the same basic strategy would not yield very good results. So, yes, Taleb may have hit the new "trend following", but as more and more people follow his strategy, he will have to make more and more iterations and refinements to be able to profit from it in the long term. That is why I said he must be a trader, meaning someone who is able to continually adapt to competition and not follow a static strategy forever. So the real edge is in the trader not in the strategy per se.
The more often you trade, the more your trading will revert to a zero sum. This only means that in order to be consistently profitable, you must be very selective with your trades. The same principle was applied to the MIT blackjack team from the 90s. They only started increasing their bets at the tables where the card count was increasing in their favor. That was the secret to their success. Being selective and good money management is what allows traders to beat the market.
Many traders fail at daytrading because they have no clue how to be selective or what setups constitute a high probability trade. Then they fail to attack the good trade situations with enough size to reap any meaningful profit potential. These failed traders sit behind their screens all day and churn their accounts to zero. That's why they will almost always fail.
At my trading desk, 9 out of 10 traders have been net positive consistently for months to years. Yes, neutrino, it most certainly can be done.
Many traders fail at daytrading because they have no clue how to be selective or what setups constitute a high probability trade. Then they fail to attack the good trade situations with enough size to reap any meaningful profit potential. These failed traders sit behind their screens all day and churn their accounts to zero. That's why they will almost always fail.
At my trading desk, 9 out of 10 traders have been net positive consistently for months to years. Yes, neutrino, it most certainly can be done.
That's an interesting concept in theory but of course is very difficult in practice. Nevertheless I think we continually apply the blue ocean strategy in the markets. For example some 30 years ago there was a huge demand for a moving average crossover strategy. The market just paid a lot for it. But as more and more competitors started to sell it, the profit margins deteriorated (you got more noise and bigger drawdowns). You could still use that strategy today, but in the parlance of the book you will be in the "red ocean". So there is a constant process of innovation going on in the market perhaps much faster than in any real industry. We always try to come up with improved strategies, reduce costs and volatility and throw that strategies in the market to test. It's nothing new
