The ACD Method

Quote from Maverick74:

Their goals are to make money. You didn't answer my question. But that's fine. Happy new year gpt!
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Would it be because they have to make money each and every day. They have to consistently perform for their clients, or else the client money stops coming in. If they don't continue to grow, they fail.

Like sharks, (always swimming or else they die) the funds have to continually grow where retail guys can say, "no set-ups, I'll sit this one out."

Don't know if that's the answer, but interested to see what you think Mav.
 
Quote from Quon:

Would it be because they have to make money each and every day. They have to consistently perform for their clients, or else the client money stops coming in. If they don't continue to grow, they fail.

Like sharks, (always swimming or else they die) the funds have to continually grow where retail guys can say, "no set-ups, I'll sit this one out."

Don't know if that's the answer, but interested to see what you think Mav.
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No. There is no federal law that says they have to make money each and every day. In fact, not only do most hedge funds not make money every day, most hedge funds don't make money each year. Even better, most hedge funds don't make money period!!!! LOL.

And prop firms have no investors. They have no such obligations to make money every minute of every day. Prop firms have partners that have equity in the firm. All they want is a return on that equity. They don't care if it's the first 5 minutes of trading every day or whether it occurs overnight at 2am.

The fact of the matter is, most of the liquidity here in the states is the first 2 hours of the day. That is when most trading takes place. It's also the most crowded time of day and the most noisy. Nobody can just walk into that rush hour traffic and take some money and leave. LOL. Don't we all wish that though.

The fact is, there are very few edges out there. To exploit most of them it's very costly in terms of either capital requirements, technological requirements or time requirements. There is no way around this. For if there was an edge that came at little cost, with little to no technology involved with very little effort involved, it would be gone in a nano second with every man, woman and child rushing in to get it!!!!!!!!
 
So then what conclusion do you come to? Or does one come to a conclusion at all? When you previously said you ask yourself this all the time, (with regard to why funds hire 1000's of quants and try endlessly to exploit edge) is the question just rhetorical. Is looking for the answer just part of the overall journey?

Just wonderin' Thanks as always!
 
Quote from Maverick74:

Their goals are to make money. You didn't answer my question. But that's fine. Happy new year gpt!
More...

A last entry on this.

1. They have customers, i don't. Trade my own money. I am prop for the leverage, 95% of profits aree mine for that 10:1, I only need to have 200K BP unless trading spreads with size, and I get a good 'risk' deal on that.
2. They have trading meetings. I have a great chat room to share ideas.
3. They have big money to manage, I just need a few good trades, and discipline to avoid big errors (OGT, borrowed from SMB- I am not associated, uad their blog and Mike's book).
4. I am well focused on 6 technical set-up patterns, that is it. If they don't show up (rare), I don't trade or stick compeltely to spreads.

My best to all for great profits in 2012.
 
Quote from gptrader:

A last entry on this.

1. They have customers, i don't. Trade my own money. I am prop for the leverage, 95% of profits aree mine for that 10:1, I only need to have 200K BP unless trading spreads with size, and I get a good 'risk' deal on that.
2. They have trading meetings. I have a great chat room to share ideas.
3. They have big money to manage, I just need a few good trades, and discipline to avoid big errors (OGT, borrowed from SMB- I am not associated, uad their blog and Mike's book).
4. I am well focused on 6 technical set-up patterns, that is it. If they don't show up (rare), I don't trade or stick compeltely to spreads.

My best to all for great profits in 2012.
More...

I didn't know you were a prop trader gpt. And a tech vice president. Nice.

Do you trade with a Canadian or US prop firm?

The reason I ask is here in the US, FINRA is really getting strict about this. To become a CBOE member for example, you have to "prove" you are a professional trader who makes all his income from trading. If you had another profession, the CBOE would kick you out. Basically block your U-4.
 
Mav, what is an edge? What's the difference between having an edge and a method that makes money? Is there a difference?

You said edges are few and difficult to find. If it were important enough, I would spend significant time and money searching for what I wanted. The unprofitable funds don't have an edge and spend a lot of time looking for it. The firms that make money are probably working to maintain or sharpen their edge(s). They may also be looking for new ones either to make more money or replace old edges that disappear. How are the funds paying staff? Is it according to time, performance or some combination?
 
Quote from Snaggleteefs:

Mav, what is an edge? What's the difference between having an edge and a method that makes money? Is there a difference?

You said edges are few and difficult to find. If it were important enough, I would spend significant time and money searching for what I wanted. The unprofitable funds don't have an edge and spend a lot of time looking for it. The firms that make money are probably working to maintain or sharpen their edge(s). They may also be looking for new ones either to make more money or replace old edges that disappear. How are the funds paying staff? Is it according to time, performance or some combination?
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Nice handle.

There are two types of edges. I have discussed this at length on this thread but I'll go over it one more time. There are structural edges (market maker bid/off spreads, technology, cost of doing business and information flow). These are implicit edges that are not really debatable. The other edges fall into what is known as "theoretical edges". They are not implicit. A lot of guys like to think technical analysis falls into that category. I personally don't, but what the hell do I know. LOL.

To me, when I hear the word edge, it implies to me some "advantage" one person has over another. The first category I listed is pretty obvious. If someone can trade on the bid and offer and you can't, that is an advantage. I like to talk my book and say that understanding price action is an edge. Simply because most people can't do it. When I was a tape reader for listed stocks, that was an edge. Again, most guys could never learn to read the tape. So if you had that skill and they didn't, it was an edge. One could make the argument that being able to do quick math in your head can be an edge especially if one has to trade complicated option positions or spread positions.

Edges should be able to prove themselves quantitatively over time. If I claim my quick math skills is an edge and I trade on the floor but over time I'm not making money, then I guess it isn't really an edge. If I use information flow to make money and it doesn't prove to be profitable over time, it probably is not an edge. An edge should have the probabilities working for it over large data samples.
 
Quote from Quon:

So then what conclusion do you come to? Or does one come to a conclusion at all? When you previously said you ask yourself this all the time, (with regard to why funds hire 1000's of quants and try endlessly to exploit edge) is the question just rhetorical. Is looking for the answer just part of the overall journey?

Just wonderin' Thanks as always!
More...

I ask myself this every day to make sure I'm not being "fooled by randomness". When you put a lot of time into something, you don't want to find out down the road that you just got "lucky" or you were the benefactor of a certain environment. You want to know you have something real to lean on.

It's like getting married right. You date a girl, you get engaged, you start getting a little nervous about the "till death do you part" stuff. You are pretty sure she is the right one, but not 100% positive. You don't want to spend the rest of your life committed to the wrong girl.

So I spend some time thinking about my results and what drove those results. I have seen ACD battle tested in enough market environments and with enough products to know there is something real there. That there is a quantifiable edge. It has taken a lot of years, but it's there. Taleb makes a great point that most people attribute success in life to talent when in reality, most people are just lucky. Lucky in marriage, lucky in health, lucky in friends and lucky in trading. It does bruise the ego a bit, but it's mostly true.

We all have luck to some degree. I ask myself constantly though to what degree luck is playing in my trading. It's really anyone's guess.
 
Completely agree, luck is only part of my reason for success.

The harder , the longer and the smarter I work at the project -the more luck I find .
Really it's just a matter of odds , the longer you focus on a successful goal, the closer it gets.
And here , many want the best formula.!
Ask yourself what is the best car ? It depends on your factors you consider important .
Do your homework, except this homework can bring in rewards.
Cheers, G.
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