Quote from romanus:
What is it about liquidity issues and the nature of the market that would destroy a system if you give somebody else too much help?
And how much help is not too much as not to destroy a system and still be of help to somebody else?
Care to elaborate?
I have a few profitable system which I am currently compounding. However, just because I am compounding these systems, chances are they won't make me the richest person in the world. This is because of liquidity limits in the market.
Although liquidity can grow infinitely, within a finite period of time at a specific price level there is not an infinite amount of liquidity. Even the ES, a very liquid index future, has its limits. After your position sizes get large enough, your market impact becomes substantial enough to affect the outcome of your trade.
If you are trading a system with a 2 pt stop and a 2 pt profit target with 10 contracts, the ES can easily absorb this position size. Your entry into the market with such a position size will have an extremely minimal effect on the outcome of your trade.
Say you trade this system and compound to the point where you are now trading 20 contracts. Even then, a liquid instrument like the ES can handle it. Your trade's market impact will remain minimal.
Now if you were to divulge the workings of your system to 2 traders, then they to another 2, then those 2 another 2 and so forth.. all of a sudden 100 people are trading your system. If some of those traders manage to put in larger position sizes, now you have 15,000 contracts entering and trying to exit where you are.
Although your original 20 contract position might go relatively unnoticed by the market, I guarantee that 15,000 contracts will get attention. The market might need to go a point down to fill those 15,000 contracts. As a result of that 1 pt down move, some guys might start shorting heavily. Another 1 pt move down, and presto.. a trade that might have been profitable all of a sudden turns into a stop out.
You might consider such logic paranoia, but this is how the market works. Market impact is a major area of focus for institutional traders. This is why institutions have caps on how much capital they will put behind certain systems, and why not every profitable trader becomes the richest person in the world.
As for how much information is too much, this would be my definition:
Any information which would directly lead to the discovery of the inefficiency which your system exploits is too much information.
When people ask me for advice, I will give them tips. I will tell them what to study, what programs are good, what instruments I would recommend and which I would avoid, and more. Specifics such as my theories regarding properly determining sample sizes, time-frame specific sample sizes, and so forth I will not discuss. I may tell someone that a system is mean-reversion based, but I will nod discuss what I am using to determine that mean and deviation.
If I could help other trades with access to a 100% of my knowledge with no negative impact on my own systems, then I would gladly do so. However, the realities of the market do not permit this.
