Trading and broad market knowledge

[Stockmarketmap]

Many funds hire experts grounded in high level mathematics and physics and try to transfer those competencies into finance. Yet it just becomes a desperate backtest chase within shorter and shorter time frames and more and more computing power; ie randomness. Yet, some basic premises become apparent ( in terms of exposure to U.S. equities ) when we pull back up from short term, up to "40,000" feet; premises that don't need extreme amounts of "knowledge" in order to exploit their ROI "edge" .
- The small cap value stock universe has generated the highest alpha over all other stock universes over a long test sample.
- A simple moving average / price crossover strategy ( monthly basis ) applied to bench mark indices has proven to be a useful tool for producing alpha over long test samples.

James
Director of Quantitative Research

 

[Piptaker]

Let me get straight. BROAD market knowledge had got NOTHING to do with ROI. What is needed to generate profits is DEEP trading skills.

I am NOT A BIG FAN of BROAD knowledge. I am a trader with only DEEP trading skills which i am proud of.

I see trading forums flooded with knowledgeable people. Its natural for them to be proud of their knowledge.

What these people "Dont Know That They Dont know" is broad market knowledge alone is USELESS in trading, though it is good for academic/analytical purpose ONLY.

More we acquire knowledge, more we get into "analysis paralysis".
More we develop skills, more we know what to do with the knowledge.

Yes...trading skill is all about ABILITY to APPLY the knowledge. Its totally a different ball game from just ACQUIRING knowledge.

Feel free to read my thread on "Trading Knowledge VS Trading Skill"
http://www.elitetrader.com/et/index.php?threads/trading-knowledge-vs-trading-skillset.298662/

I've not visited your thread yet but will.

Interesting,I wrote this down a few years ago.....

Process for successful trading


Knowledge (imput)- Aquire or gather the available information so it then can be acted upon using historic and live practice and notation


Understanding (processing)- Processing the information in the mind correctly and making the CORRECT analysis


Action (output)- Applying the information through the opening of positions and the quality will be manifested through PnL

 

[lawrence-lugar]

Some of the best traders have a very narrow knowledge of focus -- they just know one thing, and just seem to kill it in their arena of choice

...While every other aspects of trading/investing is a completely foreign language to them

 

[rajesheck]

Some of the best traders have a very narrow knowledge of focus -- they just know one thing, and just seem to kill it in their arena of choice

...While every other aspects of trading/investing is a completely foreign language to them

Coooool ! ! !

True Focus means focusing on the task on hand with ONLY one PRIMARY aspect to FOCUS upon.

Otherwise it is DISTRACTION trying to focus on more than one thing with lack of PRIORITIES.

 

[rajesheck]

A monkey can trade better than many than those who work for big funds at the right time, monkey in a bull market like 2009 can throw darts at newspaper to select stocks. He has no knowledge and has no trading ability. It just came to be in right time, and his owner bought the stocks.

Sometimes you don't need neither of knowledge or skills.

Hmmm breakfast time, in mood for banana oatmeal.

Lets hope that experience transform monkeys into foxes

 

[brisvegas]

Some of the best traders have a very narrow knowledge of focus -- they just know one thing, and just seem to kill it in their arena of choice

...While every other aspects of trading/investing is a completely foreign language to them

Boils down to tunnel vision really .

So many people need to know why when it has zero impact on final result , I only need to know it does , everything else is superfluous when it comes to my alpha ... Profit

 

[wrbtrader]

Boils down to tunnel vision really . View attachment 163453

So many people need to know why when it has zero impact on final result , I only need to know it does , everything else is superfluous when it comes to my alpha ... Profit

First comes the broad knowledge of the game and then comes the tunnel vision. Simply, they both go hand in hand.

For example, pretend you're trading Emini ES futures. Tunnel vision can be seen on the entry/exits. Broad knowledge is seen on knowing the margin rules, leverage info at the broker, exchange open/close hours, maintenance period, dollar per tick, knowing what are the heavy weighted stocks in the S&P 500 index, impact of economic reports on the price action, risk management, proper trading equipment, discipline and so on.

Therefore, the merger of different variables (broad knowledge) into a single trading plan (tunnel vision). In contrast, if a trader attempts to apply the trading plan with only one of the above variables (e.g. entry strategy)...that type of tunnel vision will not be able to compensate successfully for the other missing variables.

That's why broad knowledge comes first and it is then follow by tunnel vision (skill set).

 

[brisvegas]

First comes the broad knowledge of the game and then comes the tunnel vision. Simply, they both go hand in hand.

For example, pretend you're trading Emini ES futures. Tunnel vision can be seen on the entry/exits. Broad knowledge is seen on knowing the margin rules, leverage info at the broker, exchange open/close hours, maintenance period, dollar per tick, knowing what are the heavy weighted stocks in the S&P 500 index, impact of economic reports on the price action, risk management, proper trading equipment, discipline and so on.

Therefore, the merger of different variables (broad knowledge) into a single trading plan (tunnel vision). In contrast, if a trader attempts to apply the trading plan with only one of the above variables (e.g. entry strategy)...that type of tunnel vision will not be able to compensate successfully for the other missing variables.

That's why broad knowledge comes first and it is then follow by tunnel vision (skill set).

I trade Eminis and your idea of broad knowledge is my version of tunnel , of course you need to know the 'basics' of what you trade . They are givens , you not getting what im saying and thats fine , im not debating it , the rings on that visual are spot on ... tunnel vision is required , knowledge that doesnt effect the end result is for intellectuals . IE macro is a total waste of time for a daytrader ..... thanks and good luck

PS intellect is better used researching/studying refining/finding edges rather than working out why market tanked on good data or visa versa . time is money , use it wisely . So much of ET is debating shit that ultimately doesnt matter .... Pursue Alpha

 

[wrbtrader]

Actually, if you've been trading awhile its easy to see it as a "given". In contrast, most newbies do not see it as such and try to trade without the basics in place. They figure they'll learn the basics after they've become profitable.

We have too many threads at this forum where people are trading the Eminis or anything else with no discipline, no backtested strategy, no trading plan or incomplete trading plan, abuse of the brokers leverage/margins versus their risk management, trade management after entry, don't know the most important stocks in the index of whatever futures they're trading...variables that do impact the end result.

Thread after thread of tunnel vision traders that are trading with real money and they don't know the basics or the givens as you refer to. These traders have put tunnel vision first and broad knowledge last.

Simply, we need both broad knowledge and tunnel vision and on any given trading day, one of those variables will have the most impact on our trade results than the others.

 

[Simples]

Specialists have tunnel vision. In the right circumstances they can produce much more than average. They are experts in their specific field, but often lose track of the big picture. They are like a well-tuned machinery for specific tasks and fields.

In order for the right circumstances to materialize, you absolutely need generalists. Remove them from the loop, and you lose adaptability. Generalists need not know all the details, but are usually jack-of-all-trades. The best generalists are specialists in one or more fields as well. They are discoverers, inventors, integrators, scientists, etc. For these kind of open-ended endeavours, it's a big mistake to be too much of a specialist.

I believe the best traders are both types. Because you need both execution and plan to go hand in hand. The absolute minimum is specialist though, since a generalist without execution cannot produce any tangible results.

Excellent diagram btw.

What I find is that no matter the discussion, as long as it is interesting, can provide some food for the brain to spark new ideas. However, many people do not pursue edge as hard as some here do, and just have no idea how much it takes and how little results may come from it even after many years of research. They keep believing the stories in media and take advice from gurus instead of verifying for themselves.