Going public with a system ruins it?

Beware of guys selling books about trading systems. I know that going public DOES NOT ruin a good system. The statement is totally WRONG. I trade for dozens and dozens of people and ALL the signals are dissemenated to the public BEFORE the signal is taken. Five dozen people "watch" the trades being taken. Each of these traders try to out-think the mechanical system and add their special "tweaks" to the trading framework.

Execution in a robust market (i.e., indices) are NEVER a problem. If you are trading oats or lumber you might have a problem with size...but, if you think anyone is really interested in a good public system....please think twice. As posters can attest to: posting a proven system, with a track record that can be verified in accounts, is only an invitation for vicious attacks. People don't want to steal good systems, they want to criticize them because of their inability to create profitable approaches to the market. That's been my experience. I'm sure many here have great approaches and are worried that the big "boyz" will steal your dark secrets. Nothing could be farther from the truth.
 
Quote from Cutten:

Counter-example - the Black Scholes model for option pricing.
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Black Scholes is not a trading system. Its just a way of measuring market characteristics.
 
Quote from Martini:

Of course you want to be able to get your order filled, but you don't want the majority of traders on the other end of the trade. If they are, you'll be on the side of the smaller crowd and your trade will be a losing one.
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How do you know? Why does being part of the smaller crowd mean that your trade will lose money?
 
Quote from cable:

Going public with a system ruins it?

Take heart, it was probably worthless before it went public.
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Cable;

True on the latter statement;
however if enough get on even a good interstate @ same time , doesnt ruin it, but may slow it down @ certain times-not ruin it.

President of Bollinger Capital Management noted;
1] He liked to share
2] Most werent dicsiplined enough to follow what he shared
3]Amoung those disciplined, personalties differ ,
so sharing for free was win/win for him [paraphrase]


Nothing new under the sun
 
Originally posted by Cutten
How do you know? Why does being part of the smaller crowd mean that your trade will lose money?
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Isn't that the way it works? More shares being bought than sold - prices go up and vice-versa?
 
Quote from Anseld:

lol.

cutten, do you know what are you talking about?

1.) the black scholes model *isn't*even a "system."

it's just a formula. just a tool. not a trading system. the black scholes model does not give signals on when to buy or sell.

2.) as for its dependency as a model, that's weak, too. even though it gained recognition from the noble prize, that pricing model hasn't even provided accurate derivaitve values for awhile now. anyone serious with options trading knows about how that specific theoretical model works poorly on real-world volatilities and disregards some of the most fundamental aspects of option valuation.

professonals and exchanges on the floor across america and the world don't use black-scholes. it is full of holes.
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1) The Black Scholes model very much does give signals - it points out when one option is mispriced relative to another, given certain assumptions. A firm a friend worked for even had software that would flash "buy" and "sell" when a particular option's value became out of what with the rest of the series. If that's not a trading signal then I don't know what is. So your first point is incorrect.

2) I don't recall saying that it provided accurate derivative values. What it did was to provide an improved ability to assess relative valuation between options, compared to the methods prevailing previously. One could use it to create a simple system to arbitrage mispricings in the very inefficient options markets of the 70s and 80s, and make huge sums of money in the process. And this is exactly what firms like CRT and O'Connor did. Were they not using a trading system? And if so, what sort of system was it? It was a system based on the Black Scholes model. So I ask you - did anyone ever use a trading system based on Black Scholes to make good returns in the markets? If you answer yes, then you are admitting you are totally wrong. If you answer no, then tell me how much cash you are prepared to wager to back up your belief, and we'll make a little trip to Chicago to settle things.

Finally, despite its flaws, many firms and traders *still use* Black Scholes around the world. They do not use it solely, but rather know its failings and use it as a general guide rather than an absolute measure of value. So even your final unrelated point (since I never said trading on Black Scholes *still* made money - merely implied that at one point it did in the past) is incorrect. You asked me if I know what I am talking about. I've just provided the evidence to back up my position. Now either point out the flaws in my logic, or admit that you were wrong.
 
Quote from Martini:

Isn't that the way it works? More shares being bought than sold - prices go up and vice-versa?
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Not necessarily. The crowd might change its mind between the time you enter and exit your position. Or new money might enter the market, contrary to the original crowd. Or one player with lots of money might overwhelm the many players with small amounts of money.

If you think about it, every top or bottom occured when the crowd were going the wrong way. If you bought the low, then you went against the crowd, but still made money. Sure, sometimes following the crowd will work, but you can fade them at times too IMO.
 
The size of the crowd is irrelevant. If a Fund or two enter the market, there may be 2 Funds buying and 30,000 traders selling, and I assure you the traders will do an about face faster than you can say....

nitro
 
Quote from cable:

If your system depends on perfect entries and exits to be profitable, it's not much of a system.
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Really? What if it could make 100% per year with minimal slippage (say doing 200 lots in ES), but with big slippage (100,000 lots) it would lose money?

Are you going to turn your nose up at a system with a great return just because it requires moderate slippage to be profitable?
 
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