Revisiting Acrary

[Ghost of Cutten]

And buyers buy -- demand -- and sellers sell -- supply -- according to their perceptions of value.

Often they don't. Someone can buy a stock they perceived to be overvalued (or sell an undervalued stock), for all kinds of reasons - they think the price will go higher; it hit their stop loss; they want to alter their risk profile; they are hedging another position; their fund is suffering redemptions and they have to cover; the government made it illegal to continue holding short positions; they are trying to take over the company for strategic reasons; they hit the wrong key on their computer terminal; their algo went haywire; they felt like gambling on it.

None of these have anything to do with their perceptions of value. Some of them don't have to do with their perceptions at all (e.g. forced buying/selling, such as redemptions, stop-losses etc).

Remember I am arguing against the statement "perception is reality". I am definitely NOT arguing against the statement that people often act on their perceptions. The latter statement is obvious, the former is absurd. Also, people don't always act on their perceptions. When a person's head is cut off by a sword, and they fall dead to the ground, their actions are governed by objective reality, not by their perceptions. Similarly, there are reality-driven actions in the markets as well, it is not all about perception.

 

[dbphoenix]

All of which has to do with perception of value in some way. Stocks have no intrinsic value, nor do companies.

 

[Ghost of Cutten]

All of which has to do with perception of value in some way. Stocks have no intrinsic value, nor do companies.

No it doesn't. Examples of where value is irrelevant - if your fund is hit by full redemptions, you have to sell regardless of value. If you are short, and short positions are banned, you have to cover regardless of perceptions of value.

Examples where it is objective reality, not perception of value, which drive things: arbitrage; asset-stripping takeovers; special dividends; corporate liquidations etc. Cash payment is an objective measurable fact, which would be described by everyone in the world except yourself, the financially uninformed, and lunatics as 'instrinsic value'. It is not merely a perception of value.

Also, none of this is particularly relevant to whether 'perception is reality', which was the topic under discussion. And it is entirely irrelevant to acrary's view on markets. Since you are now just re-stating the same assertion, without providing any logical reasoning to factual evidence to back up your claims, it is pointless to waste time by going round in circles. Better to get back on topic.

 

[dbphoenix]

And cash payment is based on a perception of value.

But I don't see any point in going for another round either.

 

[Ghost of Cutten]

Your strategy has to account for change in market behavior, the strategy simply ROLLS to the side that the market changes to. And then eventually ROLLS back to the market behavior that was before. Like a giant circle again and again. Sometime it takes market 3 months to change its behavior, sometime 1 year.

You adapt with already prepared same and yet different trading method. And you measure for change and apply three-fold strategy as needed.
------------------------------

The devil is in the detail though. First, you have to determine the market state. But you also have to assess the likelihood of this state continuing. This is not always easy, because a market can transition to another state at any time, and at short notice.

For example, let's say the market is in an uptrend. The S&P for example. Is being long here the correct play? How do we know the market is not topping out, after a 5 year long bull market with hardly any major correction for the last few years, a low VIX, and widespread complacency?

Even if we think being long is correct, it is definitely possible for a pullback, correct, or bear market to develop. How then do we react? How do we tell that a 5% pullback, as has happened many times in the last 5 years bull market, is just a pullback and not the start of something bigger?

The fact is that acrary has probably developed methods that help him to answer those questions accurately enough to be able to profit from when the market state continues, whilst minimising losses when the market state transitions from one to another. Every experienced trader knows that trend-following strategies work terribly during major reversals, and during ranging markets or meaningless chop. But also, they can't profit if you exit every time there is a minor pullback. So it is essential to be able to run the position during a trend whilst exiting promptly during the transition to reversal or ranging market behaviour. This is hardly an easy thing to do for the typical trader.

Saying 'trend-follow during trends/momentum, fade market extremes and reversals, and buy low sell high during ranges' is just a meaningless platitude if you don't also know how to spot, and react to, the transitions between those 3 market states. You also need strategies that work well for each market state - not quite as simple as you might think, especially for a newer trader, or when the markets do one of their periodic structural changes.

 

[game]

The fact is that acrary has probably developed methods that help him to answer those questions accurately enough to be able to profit from when the market state continues, whilst minimising losses when the market state transitions from one to another. Every experienced trader knows that trend-following strategies work terribly during major reversals, and during ranging markets or meaningless chop. But also, they can't profit if you exit every time there is a minor pullback. So it is essential to be able to run the position during a trend whilst exiting promptly during the transition to reversal or ranging market behaviour. This is hardly an easy thing to do for the typical trader.

He said:

I would trade 100% strategic and 0% tactical. By this, I mean I would diversify simple trading styles like trend, countertrend and rangebound over time and markets. I wasted too much time and effort on when to buy and when to sell. My time would've been better served asking; "should I be long, short, or flat?", for the simple strategies in multiple timeframes and markets.
Rather than compounding I would add more timeframes or markets to build the account while continually lowering the overall risk.

I didn't think I could achieve superior results this way and thought it would end up like the one dimension long term trend followers that suffer through long and deep drawdowns. What I've found is you get the benefits of case 1 and the scalability of long term trend traders without having to pay in terms of deep drawdowns. No need to switch between themes. Cut losses short if a primary theme becomes secondary and let the secondary that becomes primary give you your profits. Not very exciting...but very rewarding. No prediction necessary.

He emphasized diversifying through time and markets, thus achieving scalability without the huge drawdowns normally experienced by trend traders. Yes you are correct that details do matter and the trader must come up with a way to define these transitions and then develop strategies to trade them.

But details aside, I believe he was emphasizing a certain 'simplicity' - an approach to the markets that is based on applying simple strategies based on the particular 'character' of the market during a particular time. The diversification probably eliminates the need to be neurotic about 'anticipating' rapid changes to the market's character - as long as losses are cut short and profits are kept long. His post did not come across as a platitude. In fact, to me, it rings true on a very deep level. When I study successful traders, there is a simplicity to their approach that matches what Acrary said.

It is likely that achieving this simplicity will take the aspiring trader many rounds of unnecessary complexity. But there is value in knowing what to shoot for.

 

[pemully]

all the consistent traders I have seen in ET use stat arb aka mean reversion strategies. classical momentum strategies that worked for decades don't work well enough to pay the bills.

 

[OddTrader]

ACrary vs JackH

AC talked about his new development; JH explained about his old development.

Both were trying to fish potentially useful feedback from ETers, in order to improve their individual developments.

Why would anyone provide any detail (Edge) on ET for a proven development? lol

He said:

I would trade 100% strategic and 0% tactical. By this, I mean I would diversify simple trading styles like trend, countertrend and rangebound over time and markets. I wasted too much time and effort on when to buy and when to sell. My time would've been better served asking; "should I be long, short, or flat?", for the simple strategies in multiple timeframes and markets.
Rather than compounding I would add more timeframes or markets to build the account while continually lowering the overall risk.

I didn't think I could achieve superior results this way and thought it would end up like the one dimension long term trend followers that suffer through long and deep drawdowns. What I've found is you get the benefits of case 1 and the scalability of long term trend traders without having to pay in terms of deep drawdowns. No need to switch between themes. Cut losses short if a primary theme becomes secondary and let the secondary that becomes primary give you your profits. Not very exciting...but very rewarding. No prediction necessary.

He emphasized diversifying through time and markets, thus achieving scalability without the huge drawdowns normally experienced by trend traders. Yes you are correct that details do matter and the trader must come up with a way to define these transitions and then develop strategies to trade them.

But details aside, I believe he was emphasizing a certain 'simplicity' - an approach to the markets that is based on applying simple strategies based on the particular 'character' of the market during a particular time. The diversification probably eliminates the need to be neurotic about 'anticipating' rapid changes to the market's character - as long as losses are cut short and profits are kept long. His post did not come across as a platitude. In fact, to me, it rings true on a very deep level. When I study successful traders, there is a simplicity to their approach that matches what Acrary said.

It is likely that achieving this simplicity will take the aspiring trader many rounds of unnecessary complexity. But there is value in knowing what to shoot for.

 

[dbphoenix]

ACrary vs JackH

AC talked about his new development; JH explained about his old development.

Both were trying to fish potentially useful feedback from ETers, in order to improve their individual developments.

Why would anyone provide any detail on ET for a proven development? lol

Acrary's last post, however, was December 1st.

 

[game]

ACrary vs JackH

AC talked about his new development; JH explained about his old development.

Both were trying to fish potentially useful feedback from ETers, in order to improve their individual developments.

Why would anyone provide any detail on ET for a proven development? lol

The reason why someone on ET would provide guidance to other aspiring traders is the same reason why successful entrepreneurs provide guidance to others, why successful athletes provide guidance to others, why successful humans provide guidance to the new generation.

You show me examples of competition, I will show you examples of generosity.

But then the inevitable issue of 'verifiable' credibility comes up. If we can't judge context on a message board, what business do we have judging context in a market? Either way, it's a bet, both with it's cost and associated payoff.