Quote from Scottsdale:
The edge I can gain over a machine is achieved when I figure out what that machine is reacting to. A simple example was trading the large cap nasdaq stocks off of the S&P and NDX futures back in the old SOES and SelectNet days. Because I knew that a huge amount of index arb was being done, I could trade in front of the arbitrageurs when cash and futures became out of line. By trading a few NDX stock which were highly correlated to the index, and through my superior order routing knowledge I was consistently faster than the arbs who were trying to buy or sell a much larger basket. Also my feel for the momentum allowed me to anticipate when programs would kick in before they actually did. The problem I encounter with today's nasdaq is that it's not clear what variables are triggering automated buy/sell decisions, and there is no advantage to being a highly skilled order router. However, I do believe that with the knowledge of what variables a machine is trading off of, my observation skills would allow me to anticipate the triggering of buys/sells, and I could then get in front of them.
Great response.
It is not difficult to rationally go to work on figuring out how to have an advantage over either others or the market at large.
This thread and your example in it are show how reasoning is a natural part of positioning oneself to make money.
Once any sequence of activity is realized and understood, it is the point of departure for creating an approach for making money.
With an approach in hand, designing a detection system for the precedents of entry is not usually even rocket science.
Your post illustrates how you consider this opportunity and how those who inquire of you have difficulty in understanding this concept. It certainly appears to be a very deep line in the sand at ET.
There is a thread on chat rooms running that is a superb example of a failure to understand this reasoning and analysis concept.
Anyone journalling who is making a strong effort to collect information and data on trading should make a very strong effort to come to understand what precedes any and all market actions he is currently taking.
Eventually each known precedent leads to its predicessor. From this walk backwards in the approach used it will appear that the market follows common sequences.
Gradually a total map of possibilities can begin to appear. This is where a deeper sort of reasoning comes into being.
Cause and effect can be examined as an alternative for analysis. Once is is seen that the paths of the sequences behave as qiute independent entities that seem to only converge and have common end points, two things come to mind:
What allows this isolation to exist? And what happpens after the end points?
The discovery, finally, that sequences are guided as much by events not happening (what wasn't that?) as what appears to be cause and effect, leads a person to construct the pragmatic alternative to the sequences.
It is not anomolies which would be construed as a study of trivial cases which often drives marcro analysis.
If one turns to vector analysis, the space of these sequences begins to appear. At this point the minimum number of variables required for market analysis has been set upon the table and all the work done before, it if lacks all the significant market variables, can be revisited.
So it may be seen that an alternative avenue, the collective consideration of amomoly algorithims does define the intersticies of the pertinent money making space.
The nodes of the sequences form the meat of the vector space; anomolies fill in the vaccum around the nodes.
If one were torecognize the potential of this knowledge and wanted to begin, knowing that sequence endings cluster around just several common nodes, would be the place to walk backwards or forward from these terminals.
What just happens before and after these principle nodes is how to find out how to make the most money in the shortest time.
It is very noticable, also that there are fewer voids in the space around the common endpoint (and subsequent starting point nodes). Voids being a description of the isolated anomolies that started this thread.
Obviously the macro people are determined to mine deeper and deeper into the world of anomolies. You see the convergence here in two streams of thought. the Prop trader focus (Bright) on anomolies and now the mechanical operations of the heavy hitters.
Not obviously, but very very important is what this means to those who operate in the high money velocity trading (this is not a reference to high velocity trading(it does not have a high money vlocity)). What is means is to accept the prop and mechanical stuff as "noise" signal and to filter it OUT. Thing of it as filterable by simply using a filter that is the opposite logically of a momentum filter.
What is important for traders to begin to think about is learning how the market works. when you see the true basis of cause and effect, you have a free ride the rest of your life.
