generic strategies

Quote from horribilicus:

Another generic style of trading is "insurance selling", which people often implement by shorting far-out-of-the-money naked options, either outright or in spreads. Don Fishback & ODDS, for example.
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Hey, this one is the mothers milk of mean reversion. You find overvalued options, according to BS or maybe something else i dont care, and wait for it to converge to whatever you think is the fair price. By all means you should do this, but do yourself a favor and hedge delta at least statically.

In this day and age where volatility is considered a real asset, you could say that belongs to real arb, my type 0.

Yet another generic style of trading is "calendar plays", which attempt to exploit price patterns that occurred reliably in the past. Stuff like: (1) Buy on Rosh Hashana, sell on Yom Kippur; (2) "Sell in May and Go Away"... buy on October 1st, sell on May 1st; (3) Buy on the last calendar day of the month, sell on the third calendar day of the next month; (4) Buy the day before a US market holiday such as Thanksgiving, Independence Day, Labor Day... and sell the second day afterward. Some people prefer to call these "Seasonal plays", especially if implemented using futures rather than stocks.
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Thats a good one, i forgot. hmm.... cant we pigeonhole this as trend following? As in --- riding with a previously established pattern.
BTW, do you actually do it? I read some papers which claimed this was doable, and i know Bill Ziemba does it himself.

As for MM, that by itself is a pure mean-reversion strategy. As such, it is well known to fail when the market starts to suddenly trend.

K
 
Well, in my opinion, trend following is a bet on what price will do (continue in the direction of the breakout). Mean reversion aka countertrend trading is also a bet on what price will do (go in the opposite direction of a breakout: resistance will hold). Both strategies hope to profit by having price move in the same direction as the wager.

On the other hand, selling insurance is a bet on what price won't do (expire beyond the strike price). It hopes to profit by allowing price to do lots of things (including: doing nothing), as long as price doesn't do one specific unprofitable thing: zoom past the strike. Sell a call 3 strikes out of the money, AND sell a put 3 strikes out of the money, hold till expiration. (you are short a "strangle"). You profit by what price doesn't do. In my mind, that's different. Others may disagree.

You may wish to add to the list "Scale trading of commodities" as taught by Angelo Namrevo, Thomas McCafferty, and Robert Wiest. McCafferty's book is pretty good: http://www.amazon.com/gp/product/0071345566/ In my mind it's neither trend nor countertrend trading; more of a global macro chart-pattern based campaign of individual tradelets.

And then there's cycles. Folks who believe in cycles (such as the Welles Wilder "Delta Phenomenon" cycles) can enter before the anticipated cycle bottom, making them countertrend traders. Or they can enter after the bottom, making them trend traders.
 
scale-trading? cycle catching?

first, both sound like they are based on-mean reversion,

second they are not generic ( see the name for this thread),

third, i asked what <B>you</B> are using to make money.

and finally it is just rubbish like any other being peddled for money
 
Quote from kotika:

I still find the discussion on this forum lacking very much in the discussion of strategies. I dont think it is so very precious to reveal the generic types of things people might do. Anyway, there are only two basic generic strategies that i know of, and i doubt there are any others. The real edge is in choosing the best instruments to trade, the quality of the historical databases to tune parameters, and all the rest of techno stuff that people on this thread seem to obsess too much, like latency, execution cost, computers, efficiency of GUI etc...

With that, i will try to list the generic strategies below

type 0 : real arbitrage, buy an identical thing in market A and sell in market B

type 1 : mean reversion, if A and B are interrelated, you can find trades that take advantage of their causal relation. For example if A sinks, you might buy A and sell B short. You can win both ways, if A was wrong to sink it might recover, or if things are so bad B might follow and sink too. This is bread and butter to hedge funds, and everything i personally do in all the various markets falls into this category.

type 2 : trend following, this where you have some technical indicators to tell you to get in just when the move is confirmed to have started. For example, buying when short term MA crosses longer term MA, when price breakouts, and a zillion variations on this same theme. lot of futures traders do this sort of thing traditionally, and i'm sure many are successful, but i am not a fan.

How about we take a poll, and have people post if they are primarily doing 0, 1, or 2. If i you are not sure ask for clarification. If you strongly believe what you are doing does not fall into any of the above, i would like to hear that too, in my 11 years trading i never heard of something that doesnt fall into one of these cats.

K
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Perhaps trend-following is the wrong name for a generic strategy type; it could be "technical chart signals" as that could include trends, patterns, waves and lines? (thus trendfollowing is a subset, rather than the highest level of this genre) Not all technical trading strategies are trend following.

Anyone have any suggestions as to any web resources that propose alternative perspectives on generic strategy types that can be said to encompass the universe of highlevell trading strategy types?

Keen to get the debate going again on the hunt for the perfect list ....
 
generic strategies

I like that name! It requires a stroke of genius to come up with this!

In fact, all losers, I mean the undisputed 95 percent segment, aspiring to move on to automation will now be able to safely gather underneath this amazing "generic strategy" umbrella.

nononsense
 
to reply to mokomo:

I am trying to make people more aware of the fact that the use of all those hundreds of technical indicators falls either into type 1 or type 2. Of course some people use an oscillator to follow a trend rather than go contrarian, as in buying when RSI goes above 50 instead of waiting for it to get to 70 to go short -- but that is besides the point.
 
in reply to nononsense:

the newbies and aspiring automated traders all seem to plunge head first into programming their computers, without thinking first what and how they are going to trade. My attempt was to start a serious discussion of what kind of strategies the experienced/successful people are using. The "generic" was meant to provide cover for them, not the newbies. This way, Rufus, for example can say that what he does without revealing the instruments he trades or any specifics.

I myself, and i think i said it before, have no automation as yet, in the sense of computer putting on trades, but i do trade exclusively based on quantitative research.
 
  • Betting on what will happen: directional trading
    1. Trend Following
    2. Fading the trend (countertrend trading)
    3. Trend Predicting
    4. Trend Predicting sub-bullet A: Cycles (MESA, Wilder Delta, Seasonality, Elliott Wave)
    5. Trend Predicting sub-bullet B: Less-than-five-bar chart patterns (Candlesticks, Key Reversals, Inside Days, Outside Days)
  • Betting on what will NOT happen: nondirectional trading
    1. Selling option premium
    2. Noise trading (mean reversion)
 
Quote from kotika:

in reply to nononsense:

the newbies and aspiring automated traders all seem to plunge head first into programming their computers, without thinking first what and how they are going to trade. My attempt was to start a serious discussion of what kind of strategies the experienced/successful people are using. The "generic" was meant to provide cover for them, not the newbies. This way, Rufus, for example can say that what he does without revealing the instruments he trades or any specifics.

I myself, and i think i said it before, have no automation as yet, in the sense of computer putting on trades, but i do trade exclusively based on quantitative research.
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I fully agree with you on this. Though trying to find out about EFFECTIVE, i.e. money making, strategies in a public discussion is futile.

Over time, this thesis has been mulled over often at ET's. It will always remain a minority opinion. Probably a very small minority, almost as low as the presumed winner percentage.

This is how I undestand 'generic strategy'.
 
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