The infrastructure cost is becoming an issue, while the dumb money is wasting away.
But I think you already know this.
When a system spectacularly fails
- Thread starter jcl
- Start date
The infrastructure cost is becoming an issue, while the dumb money is wasting away.
But I think you already know this.
You guys are forgetting that wall street firms and investment banks blow out just about as often as traders... 
The only thing that keeps giving them gambling money is the fed feeding them taxpayer money. :eek:
The only thing that keeps giving them gambling money is the fed feeding them taxpayer money. :eek:
Right, and I should have noted in my post that none of this is simple in any sense of the word. Even trying to be the "smartest dumb money" is extremely difficult and required every ounce of intelligence and dedication I could muster.
I think you give the algorithmic guys a little too much credit, though. Of that 70%, my guess is that most of them won't be in business 10 years from now. That's not to say that most of the dumb money traders won't also be out of business in 10 years, just that simply paying someone 6 figures to trade isn't a guarantee that the guy will succeed. As I said in that post of mine from about a month ago, I think the population of the category known as "smart money" rotates quite frequently as things work spectacularly for a while, then spectacularly fail (as this thread title implies). My algorithm is specifically designed to get in AFTER whichever "smart money du jour" gets in. As a result, I will never lack for opportunities because there is always some "flavor of the month" driving market direction at the turns I want to trade. I simply ride their coattails. Then, when that "smart money" blows up, and they inevitably do, I ride the coattails of whoever takes their place. It's not simple, but it is robust.
Psychologically, all it takes is a willingness to forgo trying to be the "smart money". Once you have that, you need to understand the market dynamics which the "smart money" put into play. From there, it's just a matter of having the patience to follow through on the signals.
Analytically, it's a little bit simpler than you might suspect (there is no math beyond the simple multiplication, addition, division and subtraction involved, with one minor exception, which happens about 25 times per year), but there are a couple of key conceptual and logical rules which you need to follow.
Quote from jcl:
The equity curve below is from a WFO test of a simple trend following system from a trading book:
This is an interesting curve.
What is interesting to me is that this system has fooled you and other 10 people here. The system did what it was supposed to do when it found the same market conditions. Notice that by mid 2004, the system starts accumulating drawdown to mid 2005 because of the same type of sideways market encountered also after 2010. The same order of drawdown within statistical bounds is experienced after 2010. It is only because you are fooled by the scale of the chart that you think the system does worse after 2010. Actually, this was a bad system to start with and I wonder what kind of analysis prompt you to declare it a good one that suddenly stopped working.
This Tradestation strategy was able to handle the Volatility within that time period (2002-2012)