Easy edges in the markets for retail participants?

[StarDust9182]

It appears some retail traders make a living, perhaps even a good one, trading mechanically or fully automatically, an "edge" based on some repeating pattern.
But isn't the existence and long term stability of easily exploitable repeating patterns in price movement, counter to good sense?

By which I mean; shouldn't such opportunities disappear due to the counter action of more professional, higher capital, better equipped, quicker, market participants?
Or, were those to be inescapable consequences of price dynamics, shouldn't they be acted upon more quickly than possible to small retailers, thereby cutting them out?

Assuming that these simply accessible opportunities exist and perdure, why is that? What is their place in the "ecology" of trading? What do "mechanics" and "automatons" (yes I'm being facetious) get paid for?

- ras72

For me trading is analogous to an ocean. The big guys set their nets, make a big bang, chase the little fish into their nets. Some little fish ( or dolphins) learn from that pattern and eventually become bigger little fish. But the big guys must make waves by how they set their nets to entrap their prey. They can't trade without making some kind of wave.

One edge IMO is the ability of small traders to sell everything they have and go flat. Large institutions can't do that and they can't effectively hedge their market risk without opening other profitable niches. Set your net one way and you have defined those that will be caught and those that will not be caught. Don't set your nets and you don't eat. Pros have to eat on a regular basis or they lose their jobs. Dolphins can have drawdowns and periods of bad trading to think about.

There is a myth that more capital means better trading, yet there are so many obvious problems with that myth. There are layoffs in the large trading firms currently - how can that be if they are so profitable?

If the market only went one way for ever - exponential growth - that is impossible in the real world. So that implies there is some kind of pullback and some kind of continuation pattern at the very least.

BTW, there are some very respected trading names in this thread.

 

[dbphoenix]

The ideal, highest level playing, is unattainable to an individual. The simplified versions are readily accessible to someone who has spent months on it and come in many varieties.

-ras72

One's choice depends on whether he wants to play at the "highest level" or make money. Most members of trading forums would do well to stop losing.

 

[StarDust9182]

The ideal, highest level playing, is unattainable to an individual. The simplified versions are readily accessible to someone who has spent months on it and come in many varieties.

-ras72

Could you give us a hint as to what levels you are talking about. dbphoenix nailed it IMO -The only scale is making money or losing money. That would separate out 80% plus right there......

I guess we could add a second scale of idiot to genius. That gives us four levels:

Is a trading genius and makes money - level 1 - master
Is a trading genius and loses money - level 2 - student
Is an trading idiot and makes money - level 3 - annoying
Is an trading idiot and loses money - level 4 - dreamer

How many traders could rank themselves objectively?

I have met (literally) dozens of traders through the decades and learned from some of them what not to do! The majority are cannon fodder since they don't survive long enough (risk management) to get their final grade from the market. What is that trading master said ... the market gives the grade first and the lesson after that!

 

[Bob111]

Could you give us a hint as to what levels you are talking about. dbphoenix nailed it IMO -The only scale is making money or losing money. That would separate out 80% plus right there......

I guess we could add a second scale of idiot to genius. That gives us four levels:

Is a trading genius and makes money - level 1 - master
Is a trading genius and loses money - level 2 - student
Is an trading idiot and makes money - level 3 - annoying
Is an trading idiot and loses money - level 4 - dreamer

How many traders could rank themselves objectively?

I have met (literally) dozens of traders through the decades and learned from some of them what not to do! The majority are cannon fodder since they don't survive long enough (risk management) to get their final grade from the market. What is that trading master said ... the market gives the grade first and the lesson after that!

I see from dreamer to master, but I fail to see your definition of idiot or genius. I'm 8th grade dropout, but trading profitably for many many years. I'm genius? F***no..I probably have iq of 70.... btw -what I trade and how I trade it-it is probably easiest for retail. And after so many years of trading-i can sum it up in ONE sentence, but I won't
keep searching snd digging !(quote from pc game about dinosaurs for kids)

 

[StarDust9182]

I see from dreamer to master, but I fail to see your definition of idiot or genius. I'm 8th grade dropout, but trading profitably for many many years. I'm genius? F***no..I probably have iq of 70.... btw -what I trade and how I trade it-it is probably easiest for retail. And after so many years of trading-i can sum it up in ONE sentence, but I won't
keep searching snd digging !(quote from pc game about dinosaurs for kids)

I intentionally left out what a trading genius and what a trading idiot is for further discussion. There has been no obvious set of correlations in my own review of those succeeding and those failing. My rough intention of trading genius is something like knows a moving average, knows risk management, knows some patterns, knows 25 market indicators and when to use them etc. An trading idiot would be got a hot tip and bought 15000 options on one stock with all his capital. (Believe it or not, I have met one fellow who did that and won! Annoying!)

As I reflect on it, there does seem to be some correlation of lower education/IQ with trading though. I am not sure how I worked out. For my first decade I made money consistently, but I didn't know I wasn't supposed to be able to do that. When I got sophisticated, I had more troubles. I will keep searching and digging !

As to IQ. My own has been measured at a very high level multiple times by multiple groups but I overcame that handicap and learned to trade. I consider it like a Ferrari and a beetle - both can get you from A to B, but one gives you a small time advantage. As in chess, if you don't convert a time advantage to a material or positional advantage quickly, it tends to vaporize. (http://www.amazon.ca/New-Ideas-Chess-Larry-Evans/dp/1580422748)

 

[NoVoodooHere]

From the OP: "trading mechanically or fully automatically, an "edge" based on some repeating pattern. "

Ahem, market prices react to external events. Statistically they are erratic and random. The observance of a coincidence (repeating pattern) is inevitable among a large universe of events (patterns)... But this remains a random outcome. We observe coincidences in nature all the time and find it striking; but in doing so we fail to appreciate that the essentially infinite pool of possible events from which we draw these coincidences is so vast that it is statistically probable for us to see these coincidences. Alternately put, we perhaps should be surprised that we do not see more coincidences, not vice-versa.

Fools search incessantly for "systems" based on the visual depiction of market data on a chart. A coincidence (repeated pattern) does not make a law of physics; it is a random event.

It is foolish to think that the randomly generated data depicted on a chart will alter the course of the very real world that is responsible for the future fluctuations in price. Similar to religion, and insanity.

Trading profitably means making decisions based on information (in the real world). That is not to say that certain "patterns" will not appear that are repeated. Eg a flag or pennant consolidation pattern in the chart of an equity that has a prolonged monstrous run, or a pattern of a new low just prior to the moment of an absolute bottom in a chart (for you doji guys)... But the pattern in and of itself is meaningless, simply a side effect of what just happened. Similar patterns happen continuously in the markets w/out leading to the same subsequent extended directional sought-after chart... It was merely a coincidence; a random event

 

[dom993]

Here is the raw performance of 1 single pattern, no stop, no target, entry on entry-signal, exit on exit-signal. Includes commissions & 1-tick slippage on entry / same on exits.

CL 2007..2014 (7+ years). 3000+ samples.

Enough for convince me that patterns can have a statistical outcome, large enough to make money.

 

[nth]

Here is the raw performance of 1 single pattern, no stop, no target, entry on entry-signal, exit on exit-signal. Includes commissions & 1-tick slippage on entry / same on exits.

CL 2007..2014 (7+ years). 3000+ samples.

Enough for convince me that patterns can have a statistical outcome, large enough to make money.

Dom, you could never convince a pure random theorist otherwise. Complete waste of time. It's best to just sit back and smile when they talk like that. But bless you brother for trying to help someone.

 

[stock777]

Here is the raw performance of 1 single pattern, no stop, no target, entry on entry-signal, exit on exit-signal. Includes commissions & 1-tick slippage on entry / same on exits.

CL 2007..2014 (7+ years). 3000+ samples.

Enough for convince me that patterns can have a statistical outcome, large enough to make money.

Would you take 250,000 in cash for the system?

 

[GreedAndFear.eu]

Say I develop my strategies using a cheap Excel spreadsheet and a free charting program. I notice certain price patterns that occur shortly before each significant intraday price swing occurs.

There's a problem, though. There's no way for me or anyone else to know in advance whether any individual appearance of these patterns will result in a significant intraday price swing in my favor.

I discover, however, that 100 days worth of spreadsheet analyses of price moves following each appearance of the patterns demonstrates that more often than not the appearance of this pattern will result in a significant price move and by entering trades every time the patterns appear, and managing the risk:reward (stop loss and profit target orders) in a way that exploits the significance of the price moves favorably I can end up with enough profits to live off of.

I'm not bringing a new toy to market. I'm bringing an old toy that's been around as long as there've been price charts and people analyzing the patterns price forms when it reaches certain supply/demand levels and turns the other way.

I'm not trying to outsmart anyone, and not trying to avoid losing trades. I'm simply exploiting the concept of positive expectancy based on the fact that when there's more demand than supply price will rise, when there's more supply than demand, price will fall and at certain levels price will do this strongly enough that I can profit from the inertia inherent in those moves as price progresses from one key level to another.

I'm a small retail trader. I don't have to deploy huge sums of money, therefore I don't have to outsmart anyone or have expensive powerful tools to get what I need.

Ras, how do you make money trading? Are you a "big operator" or do you have some sort of secret method like inside information?

Agreed, and what I too consider to be a great advantage is: being a small trader. I am no more than the well known little speck on a fly's leg on an elephant's ass. That's a huge advantage. No one is watching my orders and I can get in and out of a position any time. So I'm just trying to swim along with the big sharks and see if they accidentally drop any food ;-)