I'm working on a device that, using a quantum delayed eraser effect, will relay me stock prices from 30-50 microseconds in the future. I'm talking with NYSE about installing the device at their new Mahwah data center, right in front of their backup pod feed handler (to test). If it works, it will change the face of trading forever.
Random buying and selling, and day trading
- Thread starter planttime
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I just installed mine in their server, and my device is running at the rate of 15 to 30ms with ten million components with several billion lines of low latency coding. So conclusion - you loss
I'm not sure I understand the market dynamics well enough to answer this question adequately. I suspect a completely random strategy may very well be better than most non-random strategies which a typical retail investor/daytrader might use. I guess what I would say is stocks are mispriced when you buy them (e.g. some hedge fund has probably been accumulating ahead of some insider info, which causes the stock to be more expensive than it otherwise would be). So your potential gain is less even if you're on the right side of the trade.
There are other things that I suspect work against you as a retail investor. For example, if you are buying/selling at most retail brokerages, order flow is routed through a couple of big players (see relevant disclosure docs: https://content.etrade.com/etrade/powerpage/pdf/OrderRouting11AC6.pdf, http://www.tdameritrade.com/forms/CLR2054.pdf). I don't believe for a second that that an entity like Citadel only serves as a liquidity provider. You can bet that they're trying to extract as much dollars as possible from their view of YOUR order flow. This means that if you place a large order, you're more likely to see price movement against you. With your random strategy, you don't stand much of a chance against an enemy that knows your every step.
Much of this is unsubstantiated since I don't work in the industry, they're just some suspicions.
Agreed.
But it's safe to say they're "random" as far as most people are concerned.
I cannot predict motion within a molecule. Therefore it's random to me even tho it's not really random.
Therefore, approach price as if it were random (because it likely is to you). Excepting, of course, all the ET millionaires who can use MACD. But for the rest of us who can't, it's random.
How do you profit from random markets?
That's what I'm trying to figure out.
Average down? Average up? Pyramid up? Trade both directions at the same time? Double hedged martingale? I dunno, but I know the answer isn't predicting anything with MACD!
There are other things to predict besides price. For example, if you could predict volatility then you could make a lot of money with options. Just buy straddles and strangles all over the place when you know volatility will be high.
I agree 100% with you that to most retail traders it is like random. But it is not for the guy with the supercomputer. Even with the guy with an efficient algorithm for solving an initial value problem. Casinos know that. They know that roulette is not random. All this crap about randomness did not stop Gonzalo from beating the roulette using a computer in the 1990s:
http://en.wikipedia.org/wiki/Roulette#Biased_wheels
If you do the equivalent in the markets of what Gonzalo did for roulettes you can beat the system. Your only enemy will be your own broker who may try to stop you using tricks.
That's called a real edge. Most dont' have it or ever will.
It's also the exchange itself that will shut you down if you start beating the house, its not just the broker.
Not for long, light pools are coming....
expect a complete change of things within the next 2 years.