Does the market really change?

[MrRenev]

Well not that simple. Non open cry to electronic was one phase. Then once it went electronic there were some other phases. That's when the arbs completely phased out intraday strategies. But that wasn't the case in the first phase from open cry to electronic.

You ever read about the flipper? The era where his strategy was working. And then people wrote an algo that emulated the flipping strategy. Then once people got hip to that they'd programed algos to counter a flipping algo, etc. And then that whole flip just got phased out of being a frequent viable strategy.

Markets got more efficient and now exchanges that trade the same product as other exchanges are even more efficient between each other. At one time you could buy the USD Nikkei and short the YEN Nikkei and catch the difference. CME started selling it as a spread. Now it's so efficient that a gap between the two is non existent.

Why is every one focussed on useless parasites?
Yes, the sprays to kill cockroachs too stupid to make money making smart predictions have been evolving.
What we are saying when we say the market does not change is THE MARKET DOES NOT CHANGE.
Sure, the EXCHANGES and THE BROKERS and THE MARKET MAKERS change. Not fundamentally but on the surface.

As I said, "markets change" just enough for retards and people dumb enough to day trade - redundant - to not be able to read a book and rince and repeat while drooling from their brain sleeping so much.
There was a retard in the 70s & 80s that turned 1600 into 200 million, back then trading was apparently very popular and an army of dumb money clowns were creating bubbles: sugar *2, silver, ...

Any idiot with a no brain systematic trend following system made huge money.
The retard that got lucky was called Richard Dennis. He was so dense he thought "Hey anyone can use this I'll tell everyone now for sure everyone will become a millionaire because that makes alot of sense".
He was not able to make any money from the mid 80s to 2000. This guy had ~15 years and was not able to come up with anything. He lost big in 2000 when the dot com bubble imploded and quit and never heard from him again. LoL.

Who really keeps saying this? Scammers that sell shitty and dumb "does well in backtest" no brain systems to idiots that expect to pay someone then clic a button and let the money drop into their account

When I hear people that expect to not have to use their brain and were hoping setups would be the exact same that any mouth breather can notice and reproduce "being smart is not important just make sure you control your emotions" yes because investing is not intellectual naaah it's a manual job you need to be able to clic and sheeet clicking on buy is the most important part

 

[Dreadsen]

Why is every one focussed on useless parasites?
Yes, the sprays to kill cockroachs too stupid to make money making smart predictions have been evolving.
What we are saying when we say the market does not change is THE MARKET DOES NOT CHANGE.
Sure, the EXCHANGES and THE BROKERS and THE MARKET MAKERS change. Not fundamentally but on the surface.

As I said, "markets change" just enough for retards and people dumb enough to day trade - redundant - to not be able to read a book and rince and repeat while drooling from their brain sleeping so much.
There was a retard in the 70s & 80s that turned 1600 into 200 million, back then trading was apparently very popular and an army of dumb money clowns were creating bubbles: sugar *2, silver, ...

Any idiot with a no brain systematic trend following system made huge money.
The retard that got lucky was called Richard Dennis. He was so dense he thought "Hey anyone can use this I'll tell everyone now for sure everyone will become a millionaire because that makes alot of sense".
He was not able to make any money from the mid 80s to 2000. This guy had ~15 years and was not able to come up with anything. He lost big in 2000 when the dot com bubble imploded and quit and never heard from him again. LoL.

Who really keeps saying this? Scammers that sell shitty and dumb "does well in backtest" no brain systems to idiots that expect to pay someone then clic a button and let the money drop into their account

When I hear people that expect to not have to use their brain and were hoping setups would be the exact same that any mouth breather can notice and reproduce "being smart is not important just make sure you control your emotions" yes because investing is not intellectual naaah it's a manual job you need to be able to clic and sheeet clicking on buy is the most important part

this is a matter of semantics. Maybe the OP should define for the topic the criteria for which we are describing "markets changing". Different opinions on what this means will have people arguing in multiple directions based on their own interpretation of this.

One can say that Warfare from the early 1200's has changed versus now. Due to intergalactic Missiles and Nuclear weapons. We aren't using muskets and standing several feet away from each other. One can argue that war never changed by limiting this to one simple component. Money and economics. And then say that warfare is exactly the same. And the only difference is that the people who know how to fight war with muskets could not adapt to fight war with Apache Helicopters and M1 tanks. The fact that they could not adapt does not negate the argument that warfare has changed.

Mouth breathers trying to trade off of simple TA patterns and price action thinking that this would last forever got shaken out due to the change. But there are a lot of fake gurus and traders who either never could trade or used to trade and can't trade anymore who have saturated the industry with the ideas that simple mouse clicking and staring at price action is all that is needed to get rich.

 

[MrRenev]

My strategy works on 200 year old charts.

How to value company hasn't really changed.

Retards fomoing to get rich quick works the same way.

Idiotic dogmas and mass hysteria work the exact same way.

Bubbles get the same exact arguments every single time Bitcoin invented nothing.

The principle of buying a performant company at a discount is the same.

Risk management has zero difference.

Nothing has changed. The clowns that say it has can't come up with any example other than superficial shit.
They clearly have no idea how the markets works it's all vague and blurry in their little heads, to them it is random so might as well call it changing.
They cannot come up with concrete facts but what they can come up with is trading courses and forex robots.

 

[Blitzjoker]

Thanks again for all the interesting responses on this thread.

There is some justification in asking what I mean by asking whether markets change. The problem is that in some ways that is what I am trying to find out, because it is a common lament from traders that their approach had an edge, until ‘the market changed’ at which point it didn’t, and I was asking in what way the market changed to make that happen.

There have been enough examples quoted on here to make me believe that sometimes edges do disappear over time, particularly when traders are exploiting systemic problems, such as the initial poor pricing of options, or odd arbitrage effects that subsequently disappear as they are discovered. Dreadsen's warfare analogy seemed a good one to me.

As a mathematician, I can also see that TA techniques might be discovered by the masses and stop working. I remember the first time I saw a moving average crossover system (it was someone talking about managing pension investments about 30 years ago). It looked like a licence to print money, as it seemed so obvious from the example chart that the markets fell at one crossover point, and recovered after another and vice versa. It wasn’t until close study of multiple charts that I realised that it wasn’t so clear cut; the market had already fallen quite a bit before one signal, and risen quite a bit before another, so that it wasn’t obvious that it could be profitable. In fact when I tried programming it many years later, I couldn’t get it to work (maybe some can, but not me).

There is a paradox though. I read in a well thought of book (maybe Van Tharp, Alexander Elder or Ed Thorp) that following TA patterns that lots of others used was actually an advantage. For example, if everyone buys the dip during an upward trend, that would naturally push the price up and be a self fulfilling prophecy. I still haven’t worked that one out yet; maybe someone else might know? Again, I have not been able to prove that buying a dip works in practice when programmed though, rather than just getting into a trend asap.

The other point that has been made on here is that discretionary traders would not notice if the market had changed. I suppose that is also true; a discretionary trader trades the price action in front of them, presumably using TA or ‘intuition’ of some sort to make their trades. If you have a finely developed skill in trading a market now, it doesn’t really matter what they were doing 50 years ago. I have no idea whether discretionary fundamental trading has changed over time or not, as I know nothing about fundamental trading. Presumably a lot more information is readily available now and that has probably changed things too.

I am a lousy discretionary price trader though. It seems a dangerous business to me, and I have lost a little money at it over the last few years. As soon as I stopped trading my own predictions and feelings about the market, and followed a system I had developed instead, many of my losses disappeared, and I have started making modest profits. I imagine it is very easy to lose money fast with discretionary price trading, as it sometimes seems ‘obvious’ where the market is heading, and it invariably (in my case anyway) heads somewhere else.

The point made by MrRenev that the system he trades now would also have worked 200 years ago should be no surprise. If we assume that the markets have changed to the extent that they have stopped the more obvious trading systems from working, that would imply that many systems that worked in the past would not work now. It wouldn’t however imply that a system that worked now would not work in the past.

Finally, it still seems to me that many ‘edges’ that stop working do not do so because the market changes in some way to invalidate the edge, but that the edge was never there in the first place, and that the trader got lucky over a certain period, and then his luck ran out. I think that simply because an edge is hard to find, so it seems more likely it was never there in the first place than it stopped working for some unknown reason.

 

[Dreadsen]

My strategy works on 200 year old charts.

How to value company hasn't really changed.

Retards fomoing to get rich quick works the same way.

Idiotic dogmas and mass hysteria work the exact same way.

Bubbles get the same exact arguments every single time Bitcoin invented nothing.

The principle of buying a performant company at a discount is the same.

Risk management has zero difference.

Nothing has changed. The clowns that say it has can't come up with any example other than superficial shit.
They clearly have no idea how the markets works it's all vague and blurry in their little heads, to them it is random so might as well call it changing.
They cannot come up with concrete facts but what they can come up with is trading courses and forex robots.

Thats your criteria for what "markets" are. And based on YOUR criteria they are the same.

it's like arguing that Computers are the same and have never changed by reducing all computing down to the Machine language of 0's and 1's. by that definition they are all the same because they all use the same language to communicate.

But anyone can see that computing back in the 1950's is much different from computing in the 1980's and obviously much different now. And some programmers who only knew certain types of languages got shaken out of the programming industry by not evolving with newer types of languages. But underneath all of those languages is still machine code.

Now are there some people who are trying to trade using certain TA strategies or other strategies that are not working and they are attributing it not working due to the "Market Changing". Im sure there are. And they would be erroneous to use this as their premise being that that arguably their strategies never worked in the first place. And they aren't aware of it. Some educators hide behind that as the means of shielding themselves from criticisms of being frauds or selling outdated strategies that used to work and no longer work.

One can also look at the majority of Prop firms who hire people outright. Look at the ads they have and what criteria they are looking for in a candidate. Compare that to what they were looking for in the late 90's early 2000's. it's totally different now.

 

[Dreadsen]

Finally, it still seems to me that many ‘edges’ that stop working do not do so because the market changes in some way to invalidate the edge, but that the edge was never there in the first place, and that the trader got lucky over a certain period, and then his luck ran out. I think that simply because an edge is hard to find, so it seems more likely it was never there in the first place than it stopped working for some unknown reason.

In some cases you are correct. But i'll give you an example that some people may understand.

If someone is a Futures Interest Rate trader who engages in Spreading the between Bonds and Notes on the same exchange. Like the 10 year (ZN) versus the 30 year (ZB)

You used to be able to manually limit order into both legs of the spread. And there would be enough people using market orders who are going in the wrong direction that would fill your limit orders on both legs of the spread. Which would give you the best price.

Now there's algo's you can program to immediately recognize the potential spreading opportunity that will instantly place limit orders on both ends. There are so many participants doing this that as soon as you see the opportunity you'll see the limit orders expand on both ends by the hundreds almost instantly. And you'll see maybe 5 to 8 market orders hitting into the wrong direction. So now you'd have to go in with market orders on both legs of the spread so you can get in before the market starts moving. By having to place a market order you are losing 1-2 ticks on both legs of the spread. on a Spread where you were only looking to scalp a net of 6 ticks. So instead of getting 6 ticks you are now getting 1-2 ticks. So while the strategy is exactly the same when spreading interest rates in any country on any exchange. The speed of algos that are trading the same strategy has sucked up a lot of the profits available for a manual trader. And the only way to compete is by using algo yourself. Which now there are more companies offering visual programming algos for those who dont know how to code.

To your point about Edge never being there for some people. An example is one trader who began trading right when Covid-19 started. It was basically a license to print money in some futures markets the volatility was high and it was very easy to trade some simple point and click strategies with out understanding the market. Well after the liquidity came back this trader's simple strategy no longer worked and he thought he lost his "edge". While not realizing that the edge he thought he had was never there in the first place.

 

[Dreadsen]

As a mathematician, I can also see that TA techniques might be discovered by the masses and stop working. I remember the first time I saw a moving average crossover system (it was someone talking about managing pension investments about 30 years ago). It looked like a licence to print money, as it seemed so obvious from the example chart that the markets fell at one crossover point, and recovered after another and vice versa. It wasn’t until close study of multiple charts that I realised that it wasn’t so clear cut; the market had already fallen quite a bit before one signal, and risen quite a bit before another, so that it wasn’t obvious that it could be profitable. In fact when I tried programming it many years later, I couldn’t get it to work (maybe some can, but not me).

There is a paradox though. I read in a well thought of book (maybe Van Tharp, Alexander Elder or Ed Thorp) that following TA patterns that lots of others used was actually an advantage. For example, if everyone buys the dip during an upward trend, that would naturally push the price up and be a self fulfilling prophecy. I still haven’t worked that one out yet; maybe someone else might know? Again, I have not been able to prove that buying a dip works in practice when programmed though, rather than just getting into a trend asap.

.

?

As A mathematician and Academic you may appreciate this for your research.

This Study by
Ryan Sullivan , Allan Timmermann and Halbert White

"Data-Snooping, Technical Trading Rule Performance, and the Bootstrap"
https://www.researchgate.net/public...al_Trading_Rule_Performance_and_the_Bootstrap

From the Abstract
"we find that the best technical trading rule is capable of generating superior performance even after accounting for data- snooping. However, we also find that the best technical trading rule does not provide superior performance when used to trade in the subsequent 10-year post-sample period."

and from page 38 of this study

", it is possible that, historically, the best technical trading rule did indeed produce superior performance, but that, more recently, the markets have become more efficient and hence such opportunities have disappeared.26 This conclusion certainly seems to match up well with the cheaper computing power, the lower transaction costs and increased liquidity in the stock market that may have helped to remove possible short-term patterns in stock returns."

https://www.kevinsheppard.com/files/teaching/mfe/advanced-econometrics/Sullivan_Timmermann_White.pdf

 

[MrRenev]

Thanks again for all the interesting responses on this thread.

Glad you liked it

Hey look basically how I see it is you make money by front running others, by analysing lots of data, by finding patterns (not talking about triangles), that others do not see.

Retail represents 5% of FX volume and it might be less than this since brokers only execute the positions that are net risk, and some since they know day gamblers all lose also do not even bother hedging, not sure if the 5% is only for retail orders executed or looking at brokers volume.
Either way I strongly doubt they have any impact on the market. Besides, looking at aggregate positions on myfxbook, all they seem to do is the exact opposite of the trend, like a mirror, so there is no additional info here.

Now with the stock market there are much more individual investors. And quants are doing great, because they find stat arb that was already there, or because they exploit retail?

I haven't looked into it but if retail are all using the same dumb TA strategies, then one could in theory make money either:
- Trading the same strategy but BEFORE the other ones (think outside the box...)
- Trading against them after they entered maybe (hey there is no "even dumber" money to buy after the dumb money bought)

The way people think and behave has not changed. You should read "Extraordinary Popular Delusions and the Madness of Crowds" by Charles Mackay.
Markets still have accumulation, sideways (that imo are random and I don't know anyone making money except strangle MMS I guess), skepticism, optimism, euphoria (with all the day traders or momentum chasers like crypto 3 years ago).

George Soros said "I make money by discounting the obvious and betting on the unexpected".

If you are a profitable trader, other than a quant or long term investors, you probably are not a very popular person: You have "weird" opinions all the time, "crazy conspiracy theories", no one makes money being a brainless sheep every one loves & agrees with, if the herd KNEW what you know then they'd be no edge...

it's like arguing that Computers are the same and have never changed by reducing all computing down to the Machine language of 0's and 1's. by that definition they are all the same because they all use the same language to communicate.

Hey man the typical PC with windows as an OS has not changed in the past 30 years. Still same bios into windows. Still same ctrl-alt-del.
Still same RegEdit. Still same RAM. Still same or similar code. Still same processor archi. Still same GPUS - there was a period with physical cards as well as sound cards but it didn't last long. Still same protocols. Still same recycle bin. Still same everything.
I learned how to use a PC 25 years ago and idk nothing has changed. I used a Win95 emulator a few years ago and didn't notice a difference

The hardware is faster, graphics are better. But I mean... I build a PC exactly the same way I did back then. I manage it just the same. And first time I used MAC & LINUX I was a natural.

Forex has changed between the pre 70s and now, the brexton woods system was abandonned and ye before the price did not move it was fixed and since then it moves, with some periods more volatile than other ones. I spent more than 10k hours (boring I know) studying those mkts and honestly I do not see any change. If something changes I'll adapt I do not expect it to be too hard because I already thought of how to adapt and looked at hundred years old charts.

One thing that will ALWAYS work is putting yourself in other people shoes and understand what they are thinking and being able to predict what they will do (like say a hike in tax rates could cause them to cash out of stocks but negative rates on every bond could cause them to stay in whatever you get the point).

One thing that will never change also is that people that can't come up with a winning system on "day 1" and are dreaming someone will magically feed them something and it will magically work when everyone knows about it and magically make them rich, won't come up with a winning system on "day 10".
George Soros made money his whole life. Livermore too but he had bad periods thanks to his epilepsia and crippling depression. PTJ... etc plenty. Then you have trolls that use strategies that work until they don't and they blow up. And you got people with no brain systems that work when alot of dumb money is chasing the price, and these guys can never make any money otherwise.

Markets don't change because the way they behave in the presence of dumb money has always been the same, and the way they behave in the absence of dumb money has always been the same (depending on rates etc).
But afaik there is 0 no brain rince & repeat one size fits all system to turn mouth breathers into multi millionaires.


Got this from a macro trader twitter:
"I’ve seen three asset bubbles:
Internet - 1999
Mortgage - 2007
Short vol - 2017
Followed by three cash bubbles:
Summer 2002
March 2009
March 2020
All asset bubbles were burst by the fed tightening, and all cash bubbles were burst by easing.
It’s that simple. What do you expect?"

Logical thinking will always lead to money making and dumb "it's a new paradigm" "bitcoin will take over" "this time it's different the old models do not apply anymore" will always lead to the rekting.


EDIT: You know what, I think a correct example would be MOBAS, say league of legends.
There are patches every 2 weeks, and some major ones quite often, the game always "changes" but not really. Good player are not magically becoming bronze, the gameplay stays the same on a basic level, and bad players stay bad.
Now patches bring and then fix idiotic broken champions and builds.
A few years ago you had platinum players reach challenger with Udyr, then it stopped working, and they sank back to the depth of hell. But good players stay good.
Aim for excellency, mediocre traders only hope of making money is semi-legally cheating or abusing a flaw until it goes away. The top traders always adapt to the small changes, for example they look for volatile markets, they buy bonds when they yield something, avoid otherwise, buy japan stocks in the 80s but know the bubble will explode and they'll know to stay away when that happens, and so on.

 

[Dreadsen]

Okay now put this study in context with the Ryan Sullivan , Allan Timmermann and Halbert White study i posted above.

"Is technical analysis profitable on US stocks with certain size, liquidity or industry characteristics?"

https://www.researchgate.net/public...in_size_liquidity_or_industry_characteristics

This explores the data of Technical Analysis working on Illiquid Stocks. It was shown to not work and fail miserably on liquid stocks. But even in illiquid stocks the study didn't yield strong results. It only produced better results which were still weak.

From Page 16 of the study

Quote: "We find that these rules are not profitable when applied to the vast majority of stocks. This result is robust to different time periods and different markets 17 (NYSE and NASDAQ). There is some evidence that these trading rules are more profitable on small, illiquid stocks, but this result is not strong. We do not find any link between a firm’s industry and the profitability of technical analysis. When a trading rule does produces statistically significant profits on a stock, these profits tend to be greater for longer decision period rules. Also the profits tend to be considerably larger than reasonable estimates of transaction costs. This may explain why practitioners continue to use technical analysis despite it not generating profits on a consistent basis."

And this study by Gerwin Alfred Wilhelm Griffioen here (Lots of math and equations here)

Tested Technical Analysis up against different indices from around the World and it also tested it on the Indices themselves. And it also concluded that those trading rules worked on illiquid indices and and didn't work on the liquid ones. For example the "Moscow times" indice had an 83% return. But all of the North American Indices had negative returns. Peru, Egypt and Brazil indices which are very illiquid had positive returns. This also supports the Illiquid versus Liquid" results of these rules.

Now look at this study

Reexamining the Profitability of Technical Analysis with Data Snooping Checks
Po-Hsuan Hsu, Chung-Ming Kuan

This study concluded there was some profitability in young immature indices but not in mature ones like the S and P 500. This is more info that reinforces the "less participants" versus ""more participants".

Quote:"In this article we reexamine the profitability of technical analysis using White’s reality check and Hansen’s SPA test that correct the data snooping bias. Compared to previous studies, we study a more complete “universe” of trading techniques, including not only simple rules but also complex trading strategies, and we test the profitability of these rules and strategies with four main indices. It is found that significantly profitable simple rules and complex trading strategies do exist in the data from relatively “young” markets (NASDAQ Composite and Russell 2000) but not in the data from relatively “mature” markets [Dow Jones Industrial Average (DJIA) and S&P 500]."

https://academic.oup.com/jfec/article-abstract/3/4/606/907780

Conclusion after looking at all of these studies.

More Liquid stocks, more liquid futures, more liquid indices have a failure rate with these TA rules. And where are the majority of all traders trading? In North American Indices, Stocks and Futures which are the most Liquid and therefore those rules have been proven to not be profitable.

One can take this into account in the broader context of the question of "Markets Changing" rendering certain strategies as ineffective. IF one of the criteria for defining a changing market is in it's change of liquidity. Then yes. Market's Changing does in fact render some "edge" as obsolete.

 

[TimMykes]

All these global, macro studies by eggheads, prove nothing .

Any sharp trader can find massive edges , but they require hands on skillz