Gladiators, Swords, Rolls, and You

[Cocaine]

Well yes, the process of learning how to read the signals correctly and acting upon them in a timely fashion is a difficult one. However, I feel this is the best road to take. Otherwise you are stuck making "predictions" based on your opinions and the collective actions of everyone else do not care what your opinions are

Quote from riskfreetrading:

That is a good point of view. And that is not what I meant by batteling, although I understand what you mean. The ultimate trader is someone who has to do ZERO fighting (just pick the winner, side with it and reap the reward).

But you are left with the problem of knowing which side you are on. Do you know that with certainty? And if not which type of edge you have? How do you develop it? Etc. One has to make sure that he is not under the illusion of being with the winner side of the market!

 

[riskfreetrading]

Quote from Champion:

War anaologies are harmless and to the contrary add color. It is ignorance to try and displace them as they crop up everywhere in the world of business. They allow the user of such analogies to draw sharp distinctions and their purpose is as practical metphors in business lauguage.

However the process of making money from a market is not war action. It is not a war. It is a docile process of syphoning money (your net profits) from the market. You are running a conduit from the market into your pocket. For daytrading (eg CL, YM) you use an accurate methodology to do this as a continuum, Open to EOD.

Here is someone whom I think is a winner. I never did, but I will read his posts. This man has no illusion as to what he is doing, the means he is using, the context in which he is doing it, and the dangers that may exit around him (even if they do not exit in fact).

You deserve your name!

 

[riskfreetrading]

Quote from Cocaine:

However, I feel this is the best road to take.

I would even say that it is probably the only winning road to take if one is a short term trader! If one is an investor then things might be different!

 

[Joab]

Quote from riskfreetrading:

Spy: Thanks for worrying about my breakfast! I take other points of view well, and in fact thanks others for sharing them.

But isn't that the market (in doing its job), chews and spits out any trader who opposes it.?

So what your saying is the market knows where your trade is and what your emotional pain threshold is as well ?

Wrong,

The market just does it's job, find liquidity and facilitate the auction process.

It cud give a rat's ass about you

 

[NY0BScalper]

Quote from riskfreetrading:


But isn't that the market (in doing its job), chews and spits out any trader who opposes it.? When it moves and it constantly does (just one tick), it chews exactly the same number of dollars and give them (minus commish and spread) to those who do not oppose it. At each tick, there are winners and losers. How could internalize this?

You just presented proof that have absolutely no concept of what's going on in the markets,

You just said all money is transferred to market participants except for the money from commissions (fine) and SPREADS.

A stock has a bid in at 129.90 for 2000 shares and an offer at 130.00 for 1000 shares. Behind that 1000 shares at 130.00 there are no offers until 130.35.

I buy the 1000 shares at 130.00 and then place an offer at 130.35. If someone else wanted that stock at that price, it's too bad because he missed it and will have to pay up. He will buy 130.35, and even though there may be no bid until 130.90, thus creating a 45 cent spread, the "spread" is going from his hands to mine. Think of that transaction in a vacuum - imagine a market with no bids at all, and only one offer at 130.00 for 1000 shares. The market has never traded before and there only exist 1000 shares of this company in the float. I buy that 1000 shares at 130.00, and then put an offer up at 130.35. Someone then buys me at 130.35. He then decides he doesn't want the stock and puts it back on the offer at 100. Nothing has changed in the market from the beginning to the end, except that 350 has gone out of one trader's pocket and into mine and a different entity has ownership of the company and is trying to sell it. A spread isn't an actual cost. Is the cost of a spread negative if immediately after "paying" it an algorithm jumps in and bids 30 cents higher?

When money goes out of one trader's account because he paid the spread, it goes into the account of a market maker or scalper or some other market participant.

To be honest, I'm kind of skeptical of what your intentions are in starting this topic because of the way you attempt to come across through your language as a guru/expert when the actual extent of your market knowledge is so minimal that the simplest concept of how the wealth transfer works completely evades you. Who are you to be classifying market edges if you have no idea of what you're talking about.

 

[riskfreetrading]

Quote from NY0BScalper:

You just presented proof that have absolutely no concept of what's going on in the markets,

You just said all money is transferred to market participants except for the money from commissions (fine) and SPREADS.

A stock has a bid in at 129.90 for 2000 shares and an offer at 130.00 for 1000 shares. Behind that 1000 shares at 130.00 there are no offers until 130.35.

I buy the 1000 shares at 130.00 and then place an offer at 130.35. If someone else wanted that stock at that price, it's too bad because he missed it and will have to pay up. He will buy 130.35, and even though there may be no bid until 130.90, thus creating a 45 cent spread, the "spread" is going from his hands to mine. Think of that transaction in a vacuum - imagine a market with no bids at all, and only one offer at 130.00 for 1000 shares. The market has never traded before and there only exist 1000 shares of this company in the float. I buy that 1000 shares at 130.00, and then put an offer up at 130.35. Someone then buys me at 130.35. He then decides he doesn't want the stock and puts it back on the offer at 100. Nothing has changed in the market from the beginning to the end, except that 350 has gone out of one trader's pocket and into mine and a different entity has ownership of the company and is trying to sell it. A spread isn't an actual cost. Is the cost of a spread negative if immediately after "paying" it an algorithm jumps in and bids 30 cents higher?

When money goes out of one trader's account because he paid the spread, it goes into the account of a market maker or scalper or some other market participant.

To be honest, I'm kind of skeptical of what your intentions are in starting this topic because of the way you attempt to come across through your language as a guru/expert when the actual extent of your market knowledge is so minimal that the simplest concept of how the wealth transfer works completely evades you. Who are you to be classifying market edges if you have no idea of what you're talking about.

Let me say the following (with some questions):

1. Who pays the analysts, the brokers, the market makers, the stock exchange fees, the investment bankers who underwrote the IPO? These people have to be paid somehow. Tell us who pays them,and they make no risk. We know that they make a lot of money!

2. Your explanation of the facts in not complete. But let us accept it as it is. Could I ask this: is not your explanation also valid in a Ponzi scheme? And we know that the Ponzi scheme aas viewed through your prism looks good.

3. I hope that in answering point 2, you may know realize that what you looked at is the left side of the price vs. time mountain. How about the right side when the price heads back to zero (lower than where it started at IPO time)?
4. You should know that at IPO, the initial investors get their cut.
Those have really sold a real business, and obtained safe money.
5. In case you question the right side of point 3, what is the number of stocks that ended up at zero. Have you ever visited the graveyard of stocks that started above zero (IPO) and ended at zero at one point in time. If the company is a growth company, this means that dividend was not paid and nothing was paid back.

Such stocks are the largest graveyard of NEGATIVE sum games if you count only the traders who got involved after the IPO. And that include you Mr. Knowledgeable! If you doubt my assumption how many .com 's fit my description. And we did not go back in time!

Do not be fooled by indices. They forget their dead, and include just the best of the crop. The graveyard and junk yards are full (and some of your money is likely there) of negative sum stocks.

You seem to have looked at things from your views! Change your seat,and may be you will see other things!

 

[doli]

Quote from riskfreetrading:

There are three types of edges (you can subclassify of course and have other types):

1. The certain edge. This means that your edge will cut your opponent but never cut you, and you are certain.
2. The probabilistic edge. The one that cuts you and your opponent. But over all, which means multiple fights with your opponent, you end up bleeding less than him, and you win at the end.
3. The almost certain edge. Is the edge in between 1. and 2. It is the edge that you can rely on and have proof, that with a probability of almost one, you will win on each trade. But it is not certain.

Which type are futures spread trades? I am thinking they are type 2.

 

[NY0BScalper]

Quote from riskfreetrading:

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Ok sir well you seem to be the knowledgable guy here. So let me get to the bottom of it. How many thousands of dollars must I shell out for your special insights into the best kind of edges? $5999 for a seminar?

 

[MandelbrotSet]

Quote from riskfreetrading:

If you have not realized it yet, trading has a lot of common with gladiating (in case the verb does not exist, let us coin it on ET and spread it to the world "from this place and time" as JFK said once). Wall street is ancient rome, and you the trader is a gladiator. You have cuts to prove it, and hopefully the bankroll of a champion. It does not matter which camp you are on, each day swords are aimed at your head to make it roll.

You can defend yourself, but in the long run you need a sword with many edges to make head rolls--- the heads of Benjamin Franklin and co that is, on the back of their greenbacks staring at the inside of your wallet which is inside your deep pocket.

The mantra of the gladiator, the modern that is, is to hit them where it hurts the most: their pockets! The rest is just details.

For this you need swords with multiple edges. Build the edge of your swords is what I want to discuss and write about here. Hopefully you can join, and tell us a little bit about your battles, you edges, and how you build them. You can toss in there examples of heads that rolled before you, even if you did it just on paper. If Walt Disney can do it and crowds cheer them for it why shouldn't you!

There are three types of edges (you can subclassify of course and have other types):

1. The certain edge. This means that your edge will cut your opponent but never cut you, and you are certain.
2. The probabilistic edge. The one that cuts you and your opponent. But over all, which means multiple fights with your opponent, you end up bleeding less than him, and you win at the end.
3. The almost certain edge. Is the edge in between 1. and 2. It is the edge that you can rely on and have proof, that with a probability of almost one, you will win on each trade. But it is not certain.

All the above types of edges exist.

Now how one can go about finding such edges? Your best friend is: Same causes lead to same effects is a scientific principle. This requires one to think under the surface, and present a logical explanation. Then one uses numbers to ascertain whether or not one has a correct thesis.

This usually leads to an edge of type 1 or type 3.

What if you did not have the luck/skill to build a model of causes and effects, or just want to reduce your search time for such solid edges? Answer:

1. Find correlations between a variable A and a variable B.
2. If there is a correlation (negative or positive) and this correlation is strong, then B may probably explain (in part or in total) A, or vice versa.
3. Once you have your correlation, you need to establish whether there is a cause and effect relation between A and B.

If step 3 does not lead to anything, you are at your own risk to use the result in step 2 to build a trading system. In my view that is what I consider as a gambling trading system. You can win of course, but it is just because you worked things in a way the odds/rewards are in your favor, and not because you really have something fundamental behind your trading. If the climate change, your whole gambling system turns the other way, and you become the gambler and your opponent the house while in your head you are still under the illusion that you are the house. So you have to be sure you are always the house in a gambling trading system. You may also have to deal with the potential moral dilemma that comes with such realization.

I can go into further details, but i just wanted to provide a framework with the aim to spark things up and with the hope of getting others to respond and contribute.

I just wrote these comments while taking my breakfast, so please ignore things that are not of your taste such as typos, comparisons you do not like, etc.

This is a very good post, and I am glad that it has sparked intelligent conversation from the other traders.
***
Intra-day trading is like being engagaged in a fight like those first seen in The Matrix which happens at super human speed. Position trading happens at regular speed, and long-term trading (weekly, monthly) happens at a much slower speed.

I developed my edge through countless hours of observing and recording of data, finding the causal relationships (if there were any) between the different factors that I obsevered in real-time, building a model on what then should happen (when x, y and z) were in place, and then putting it to the test ... over and over again, just like any scientist would.

I also found along the way that you must get your subconcious to understand and agree with whatever it is you want to do, so you must have your psychology in place as well.
***
At then end-of-the day, trading is like a form of combat that requires strategy on the level of The Book of Five Rings by Miyamoto Musashi where you:

i) know your tools,
ii) understand how to implement them successfully
iii) know how to read the conditions for engagement
iii) press the oppotunity when the battle is going your way
iv) retreat to do battle again and again when any particular conflict is not going in your favor

Same as any other engagement where there is a loser and a winner (speaking of which, the Patriots are gonna show you the difference between the boys and the men tomorrow).

 

[MandelbrotSet]

Quote from doli:

Which type are futures spread trades? I am thinking they are type 2.

Quite often they are number 2, very rarely are they number 3, and number 1 is a very interesting group indeed (and includes many legal, quasi-legal and illegal players!)