The Implications Of Schindler and VN
- Thread starter Pa(b)st Prime
- Start date
Apples come to mind. He bought on the bounce.
So what's your supporting evidence? Your claim does after all fly in the face of pretty much all the theory, research, and real world results that are available. Bold claims that contradict accepted theory and practice are sometimes right, but they need to be supported by facts if you want them to be taken seriously.
I'll just requote my main point in full - perhaps you (and psytrade) can point out exactly which part you disagree with, and explain your reasoning:
"Basic economic theory suggests that any easily replicable profitable system will find its risk-adjusted returns competed away to the t-bill rate. Given real world assumptions, this may take a few years or even a decade+, but it will happen eventually. If you are one of the first trend-followers or mutual fund timers, you can do really well. But after a while the competition will heat up, the edges will diminish, and the activity will no longer display great profitability.
So IMO in the long-run, all fully mechanical systems will degrade. However, good systems traders will know this and will be constantly researching for new edges, and refining their old systems, throwing them out if they become obsolete. So whilst a single system is unlikely to provide superior returns over the very long run, systematic trading is still viable as an approach."
there is really no upside in publishing returns publically. if you do good, your detractors call it black swan or luck. if you do poorly, your detractors jump all over it, as witnessed here on elite.
perhaps, aaron came to this realization.
surf
perhaps, aaron came to this realization.
surf
I agree that a mechanical system that truly "works" i.e. provides long-run outperformance relative to risk, would never need tweaking, except in trivial cases such as one market shutting down, products moving to another exchange etc.
I am not aware of a single systematic trader, or trading institution, who has achieved outperformance sustained over the long-run and yet has never altered their method. If the systems supporters are correct, there should be plenty of traders like this, since once they find the Holy Grail system, they are set for life and will keep compounding capital at supernormal rates (immune to competition of course - so they would have no reason not to share their methods and would in fact gain a huge marketing edge by doing so) whilst barely having to lift a finger.
Another strange fact is that almost all successful systems & mechanical traders acknowledge market change, and stress how important it is to keep researching, testing, and adapting to cope with system obsolesence, which they generally view as inevitable. Maybe there are some successful systems traders who still use the same method unchanged from 10+ years ago and it still makes great profits for the next 10 years, and the 10 after that (a mechanical Buffett or Soros), but I've yet to hear any evidence of that. All the well known systems trading shops tweak and refine their methods in the light of results, research, and experience - the ones that survive, that is.
This seems to demonstrate that systematic trading, as an approach, can work very well. But at the same time it is the strongest possible indication that any given automated trading system will inevitably degrade over time, until it no longer makes returns sufficient to justify the risk involved. In other words, a system will not work in the long-run, but a systematic approach (if kept competitive by research and review) can.
Here's part of a James Simons interview, where he discusses the effect of competition on the performance of his trading systems:
"Q. Are markets more efficient than when you started?
Simons: Considerably more efficient. There was a time when we were trading Treasury bills and we were looking at the discount structure of the bills. We said, Something is crazy here. Far-out bills were trading at some huge discount, but the 12-month physical bill was not exhibiting any such discount. Something was wrong. This was certainly something that a Long-Term Capital Management would have eliminated in a microsecond. So we just kept looking at it and saying, Why is this? The answer was that no one was picking up that inefficiency. So we bought up a whole bunch of Treasury bill futures, hedged the position in various ways, kept our fingers crossed, and sure enough, it came in. It could have gone the other way, I suppose, but not for very long, because the chickens had to come home to roost. But those kinds of opportunities don't exist now."
Looks pretty much like he is saying that increased competition has eliminated the excess returns from easily replicable strategies.
David Shaw in his "Stock Market Wizards" interview:
"When we started trading eleven years ago, you could have identified one or two inefficiencies and still beat transactions costs. That meant you could do a limited amount of research and begin trading profitably, which gave you a way to fund future research. Nowadays things are a lot tougher. If we hadn't gotten started when we did, I think it would have been prohibitively expensive for us to get where we are today."
"The game is largely over for most of the "easy" effects. Maybe someday, someone will discover a simple effect that has eluded all of us, but it's been our experience that the most obvious and mathematically straightforward ideas you might think of have largely disappeared as potential trading opportunities."
That sounds like someone who is very much aware of how competition makes the market more efficient.
"Q. Are markets more efficient than when you started?
Simons: Considerably more efficient. There was a time when we were trading Treasury bills and we were looking at the discount structure of the bills. We said, Something is crazy here. Far-out bills were trading at some huge discount, but the 12-month physical bill was not exhibiting any such discount. Something was wrong. This was certainly something that a Long-Term Capital Management would have eliminated in a microsecond. So we just kept looking at it and saying, Why is this? The answer was that no one was picking up that inefficiency. So we bought up a whole bunch of Treasury bill futures, hedged the position in various ways, kept our fingers crossed, and sure enough, it came in. It could have gone the other way, I suppose, but not for very long, because the chickens had to come home to roost. But those kinds of opportunities don't exist now."
Looks pretty much like he is saying that increased competition has eliminated the excess returns from easily replicable strategies.
David Shaw in his "Stock Market Wizards" interview:
"When we started trading eleven years ago, you could have identified one or two inefficiencies and still beat transactions costs. That meant you could do a limited amount of research and begin trading profitably, which gave you a way to fund future research. Nowadays things are a lot tougher. If we hadn't gotten started when we did, I think it would have been prohibitively expensive for us to get where we are today."
"The game is largely over for most of the "easy" effects. Maybe someday, someone will discover a simple effect that has eluded all of us, but it's been our experience that the most obvious and mathematically straightforward ideas you might think of have largely disappeared as potential trading opportunities."
That sounds like someone who is very much aware of how competition makes the market more efficient.
an excellent commentary. I don't think most of the wannabe daytraders realize how extremely difficult it is to pull out meaningful profits day after day.
The market is incredibly efficient, but there are some who do profit, a lot less than is likely from some of the ET posters I have seen...
As I keep saying, just don't expect to slap a few ADX, RSI, MACD, volume on your charts and expect to have a cash cow.