Does the market really change?

[Overnight]

...

there also exists something called alpha decay which simply means that strategies tend to decrease in performance over time. once some edge is discovered, others will discover it as well, and money will flow to that opportunity until it is essentially arbitraged out of existence...

Then explain why time is the edge for longs on an index? Why has it not been arbed away?

 

[d08]

Most funds consistently underperform the S&P 500.



Trend following systems have been working for the last 800 years.
Markets trend, it is a mathematical fact.

That said look at a 1920 chart and a 2020 chart for instance (pick ANY financial instrument), do you see any difference?
Can you tell the difference if you cannot see the year and the price (on the X and Y axis)?

I'm not talking about average fund performance, which is irrelevant. Relevant are funds that have significant returns for a decade or more.

I'm not talking about generalized ideas like "trend following works" or "stocks go up or down". I'm talking about specific edges that are clearly defined and have significant performance metrics over significant trades. Details are what matter and I can spot chart differences in charts of different decades often.

Otherwise we might as well say "businesses either lose money or make money, nothing has changed". No shit.

 

[ducatista]

Then explain why time is the edge for longs on an index? Why has it not been arbed away?

"time is the edge" --- huh?

 

[Overnight]

"time is the edge" --- huh?

Why is this so hard to understand?

Given enough time, an index will always rise. That is the edge.

BAM!

This is a theory. Like the theory of General Relativity, it will remain true until it is proved to be false.

 

[ducatista]

Why is this so hard to understand?

Given enough time, an index will always rise. That is the edge.

BAM!

no disagreement there, outside of the strict definition of 'edge' not being time itself, but rather index b&h strategies (defining edge as anything w positive expectancy)

insofar as it relates to earlier posts, indeed this appears to be a strategy that cannot be arbed away. it still stands that the strategy is dependent on market regime, but one that has been in our favor as investors in US markets

one of my first clients once told me 'buy any index fund, hold it 10 years, and you'll double your money'. I thought it trivial advice at the time, and it prob doesn't hold for every 10y increment in us history, but on the whole it was v good advice

 

[Overnight]

...
one of my first clients once told me 'buy any index fund, hold it 10 years, and you'll double your money'. I thought it trivial advice at the time, and it prob doesn't hold for every 10y increment in us history, but on the whole it was v good advice

Yeah, especially when you got this shit going on at 10 bux per share...

Who woulda' thunk it?

 

[Laissez Faire]

What change?

Markets go up, down, sideways, that's it.

There you go.

The markets have never cease to provide plenty of volatility and enough daily (or weekly) range to scalpers, daytraders, swing traders and long term investors.

And there is ALWAYS a huge uptrend or downtrend somewhere.

Of course, if you want to take such a simplistic and coarse view, you're right. They're always moving up, down or sideways. That never changes.

But how they're moving up and down is always changing and it's actually not true that markets always provide plenty of volatility.

These days, the e-mini S&P 500 on average moves more within the first 30 minutes than it typically did in an entire 6 1/2 hour session in 2013. Obviously, it also moves much, much faster.

All of this makes a great deal of difference for a day trader strategy. If you want to say that markets in 2020 and 2013 are the same - you're really taking on a very simplistic view and pay no attention to the finer details which do matter a lot in this business.

Some statistics I generated in another thread:

Current 20 day average daily range is 59 points and offers on average 740 points per day. That's a lot of points. Approx. 12 times the daily range is offered on a daily basis.

b. At the end of January 2013 the 20 day average range was 9 (!) points and the daily offer was on average 20,50 points.

This means that today's market have an average range which exceeds 6 times of that in 2013 and a daily offer which is 37 times larger.

Capturing a 10 point swing today is not a big deal. In 2013 it was.

 

[AbbotAle]

I don't think they change overtime apart from the amount of volume.

Go to TradingView.com, put up a weekly chart of the Dow, go back to the 1920's onwards and you'll see the same sort of moves as today. Up, down, sidesways and so on, little different.

As for edges coming and going, sure, some do especially for the HFT guys but one edge will never go away in the markets - The law of supply and demand. So to find a solid edge use that, try to work out where there are more buyers than sellers and if so, JOIN THEM...

 

[Laissez Faire]

On the subject of charts:

A daily chart simply shows the O H L C values for each particular day. It says nothing about how or in what sequence these prints occurred. For example, a market which opens at the bottom, trends steadily higher and closes at the top will visually look similar to a market which opened at the bottom, printed the top within the first 30 minutes, dropped back down to the bottom, ranged there for most of the day, but rallied to the top within the last 30 minutes.

Same candle - very different market session.

There's more to the markets than what meets the eyes. Which is also why I prefer to use more than a simple OHLC chart for my trading model. But that's another discussion/subject.

 

[Peter8519]

If I understand your study correctly, 67% of the time stocks stay above the 50 SMA for 10 consecutive days, at most, right?

Exactly!
Don't jump in when it started to cross over 50 SMA. Be patient and wait for a few more days because most early trend will die prematurely.