Why would anyone post their strategy?
- Thread starter catmango
- Start date
There are a lot of threads discussing the value of sharing winning ideas that allow 'inefficiencies' to be exploited. One really heated one was by Vladiator if you want to check that out.
There's one thing that I've never seen anyone bring up here or in any of my finance classes: The 'dont-share-or it'll get arbitraged away' argument is thrown around as market truth and is assumed to hold always and everywhere. This assumption is based on the premise that all inefficiencies have the same GENERATOR. You brought up the earnings play, as you know there are quite a few of those 'inefficiencies' being arbed away, sure, jan effect, small size whatever.
The generator of the inefficiency was in the case of the earnings play, an extremely simple one, that is the discovery of a tendency towards persistence in trend before the earnings release. Easily detected relationships like that are destined to disappear. IMO, arbitrage strategies like pairs trading and the like performed by the big banks are also weaker strategies in that respect. Sure they might have worked over 10-15 years, but why expect them to persist, especially if ever other quant at every bank is rediscovering them?
However, and here's the crucial point, not all generators are born equal. It is, unreasonable, imho, to claim that the underlying rationales for the various successful technical entry setups are equally robust. Some are less robust than others or downright flimsy, and hence get noticed and washed away. Others remain tried and true over time.
Some of these are robust because of the skewed nature of the distribution of buying and selling power in the market. It's my firm belief that one has to be cynical when approaching the market. The actions of institutions, specialists and market makers leave footprints and if you can read those, you'll understand what I mean. Furthermore, technical setups that are based on human emotions cannot go away. What we have learned from history is that we don't learn from history.And everytime I see a new convert to the random walk religion (insert newly minted MBA fund manager du jour) I am overjoyed and thanking the heavens. That really helps, no kidding.
Of course, we all want to know what those robust inefficiencies are. Let me put it this way: Only the best are drawn to them, the other players, by definition are average and will NEVER catch on. At any point in time there is a given distribution of traders who are losers, just breaking even, making money and those who are really successful. Only those who are in the far right tail of the distribution are in the know, once again by definition.
They could share their strategy with you and that would turn you around assuming you can completely mimic them. Would that kill the golden goose (the generator). No. You would simply joining the small group of winning traders who can rake it in. Only a minority can hack it, only a handful, there can only be so many Tiger Woods, Michael Jordans and Larry Birds. Not everyone will be able to benefit like you for the simple reason that traders are at different stages in their development and have different ABILITIES, just like in sports or life. Not to mention that many of the world's best traders are DISCRETIONARY and while they are disciplined, they are not following rules that can be easily coded in tradestation. Emulating these masters then becomes almost impossible.
The question really is: Do I have what it takes to be in the right tail of the distribution? If you make it there, you will realize that there is absolutely no need to worry about inefficiencies disappearing. You will be in the know, and in the zone.
And no one will be able to take that from you.
Hope this helps,
Maverick.
I voted for option 3... but this doesn't mean that I am not willing to help struggling traders with general guidance...
DbPhoenix said "it might not be that much of a system", and Maverick suggested a survival-of-the-fittest type view.
Not to say that you might not come up with a good working system which would be spoiled by too many others learning of it. But rather to suggest that any such strategy has an obvious fragility to it. If you want to survive in this game your odds are better if you have a hardier (robust) system.
Trying to win with a fragile system that is always at risk of being discovered, can certainly work. I don't intend to pry anyone's methods or say that they can't work. But it's the question of fragility. It's like being a hemophiliac. You have to always be on your guard, nervous, afraid, because even a tiny cut can kill you.
It's about survival, and in the longterm survival is about evolution and adaptation in the direction of robustness.
This thread is an interesting companion to the Organized Systems Sharing thread, where these notions have been brought up. Well, I brought up the notion (Stone Soup) of overriding the atmosphere of secrecy. If we can come up with something that doesn't require secrecy, wouldn't that be rather liberating? So I suggest that perhaps one of the key tests in devising an Edge, might be "Does this system require secrecy?". If the answer is No, you're one step closer to a real durable Edge.
Not to say that you might not come up with a good working system which would be spoiled by too many others learning of it. But rather to suggest that any such strategy has an obvious fragility to it. If you want to survive in this game your odds are better if you have a hardier (robust) system.
Trying to win with a fragile system that is always at risk of being discovered, can certainly work. I don't intend to pry anyone's methods or say that they can't work. But it's the question of fragility. It's like being a hemophiliac. You have to always be on your guard, nervous, afraid, because even a tiny cut can kill you.
It's about survival, and in the longterm survival is about evolution and adaptation in the direction of robustness.
This thread is an interesting companion to the Organized Systems Sharing thread, where these notions have been brought up. Well, I brought up the notion (Stone Soup) of overriding the atmosphere of secrecy. If we can come up with something that doesn't require secrecy, wouldn't that be rather liberating? So I suggest that perhaps one of the key tests in devising an Edge, might be "Does this system require secrecy?". If the answer is No, you're one step closer to a real durable Edge.
Mechanical systems have an inherent weakness, don't they.
Of course, one important aspect of any winning system must be its ability to evolve. Your system, whether mechanical or discretionary, must not be static. Because the market is not static, it is always changing. You do have to be chameleon-like.
They could share their strategy with you and that would turn you around assuming you can completely mimic them. Would that kill the golden goose (the generator). No. You would simply joining the small group of winning traders who can rake it in. Only a minority can hack it, only a handful, there can only be so many Tiger Woods, Michael Jordans and Larry Birds. Not everyone will be able to benefit like you for the simple reason that traders are at different stages in their development and have different ABILITIES, just like in sports or life. Not to mention that many of the world's best traders are DISCRETIONARY and while they are disciplined, they are not following rules that can be easily coded in tradestation. Emulating these masters then becomes almost impossible.
Very well written. Learning from experience can't be coded into tradestation either, and those who learn before they quit or go bust move farther to the right.
Very well written. Learning from experience can't be coded into tradestation either, and those who learn before they quit or go bust move farther to the right.
The analogy of Elite Trader to Middle Earth seems humorously apt.
This little fanciful world is inhabited by a variety of creatures, different personality and mentality types, often in an uneasy but ongoing co-existence.
And the ever-present, but elusive and dangerous Ring.
