what proof do you have - yes there are tons of machines and programs out there, but there's also all kinds of new financial products popping up all the time. how do you explain ren. tech that does 3% of the volume on nasdaq and kills it yearly to the tune of 50%+. or SAC that does 3% of nyse volume and kills it yearly. there are guys making money each and every day in the trader pl thread with a consistency that is amazing. the way i see more liquidity = more efficiency. the markets are more efficient than ever only because there is more liquidity than ever. emh will never be true.
Here is a thought for you. Consider EMH as a measure of the status of the market. An organization can deal with how well the status is reported or they can deal, over time, with the differing accurately reported set of statuses that occur over time. chose daily as a warm up drill. SAC etc who trade the %'s you think are true do not make much money at all over the year compared to the continuing change of status that the markets offer. The nature of progress is to be able to have better information at a given moment. Different people may have different information at the same moment. An advantage may result for that moment and the moments near that time. When regular market hours data are compared to non market hours data, the long term results show that over many years the markets have downward trends in regular market hours and upward trends in non market hours. The net result of these two sets is well known to most; it is an upward drift over the decades. Contrarily, the market margin is different for regular market hours than non market hours. To optimize making money it is best to focus on the dynamic of value change over time rather than differences of information at a given moment (efficiency). Personally I enjoy seeing operations like SAC, etc churning away since they "smooth" the markets out for the money I am making by staying on the "right" side of the market all of the time. The "right" side is best defined as the migration of value through a sucession of statuses all changing in the same direction. 50% in a year looks like chicken droppings over 250 days. The Beta value of this performance average certainly fits into the Beta distribution of all instruments. Look at 3% of the total Beta distribution and see if you can find a place that performs as poorly as those you cite. LOL. It appears to me that these types of traders and money managers are making more profits by looking at transfer expenses and data acquisition costs more closely than anything related to taking money out of the liquidity pool. How does 0.2% a day average (50%/250 days), not compounded, look as compared to the "noise" of the market on any day. 700 hundred employees doing what? Size of capital pool is not an excuse, either.
Jack, what cycle work do you adhere to? Astro cyles, Fibonacci time extensions, Delta theory,....? I have been using a rudimentary but robust intraday cycle count superimposed on a variant of your channel theories. I'd be interested in looking at your longer term projection work/theories.
From what I observe, new products are most of the time well priced if you are looking for arb opportunities. Market makers adjust their bid/offers to fair value and opportunities appearing on OHLC datas are mostly due to the low frequency of fills. Arb opportunities come with volume to me. I have the impression that "keeping prices in line" is made by MMs for the most part and arb programs are residual for outliers. Markets like index futures may not be driven at all by the "offer and demand" law( i don't know how it is called in english ). People drops money in one thing that doesn't care at all in its movement. Am I wrong? It's incredible how everybody is focused on arb these days... There are lots of other easier stuff to trade .
50% in a year looks like chicken droppings over 250 days. I wonder whether Jack is trading the billions that Rentec and that ilk are managing. If he were, he might deem returns even approaching 50% pa as rather remarkable. Unlike the hedge funds of course, Jack does not have to publish his P&L. The mighty machine does also put into context the people who make a living (or do they?) scalping the markets manually. Some people I recently came accross have 200 IT bods to manage their computers, turn over billions in automated trading each day and are flat every evening. They make many millions a year for themselves - its all proprietory trading, no clients. Given the choice between the Jack Hershey method or the giants of automated trading...............
You are expressing a choice of one system or another. It may be possible that this choice is not available to others than those in your class of trading activity. You and I have had the opportunity to make the choice and now you are one of the giants of automated trading. My compromise was to not work in the place where giants operate and conduct their culture. I feel that every individual and family can have an investment/income stream larger than can be achieved by working profsssionally. It is a case of spending time to go through about six stages of learning (a process) and beginning with any small amount of capital and componding it beyond the levels of the conventional orthodoxy. In effect that family or individual may be compared to the employees or owners of the your operating automated giant entrprise I feel that there is a crossover point where what I suggest exceeds the other in terms of an individuals results. The giants, I feel, are managing pools of capital and, therefore, they have to distribute much of their success to those whose capital they manage. I avoid, completely, any distribution obligations. I am very glad of two things: that pools of money have been aggregated by others and that those pools are available to me for extraction under the circumstances that exist. The situation that exists for me and for the giants is that they follow the conventional orthodoxy and I do pool extraction focused on the offerings of the markets. According to the principles we both share, I get to operate very efficinently and they do not. Look at the key principles and see the differences in our respective opportunities. 1. We both have to be in the market to make money. This is a draw with respect to advantage. giants and I both have the same advantage. I am always in the market and so are you as a giant. 2. We both have to be on the right side of the market. I trade, as required, to always stay on the right side of the market. Roughly speaking, with regard to six levels of market pace, I am able to trade at the capacity the market offers and I take 20 to 40 actions a day with my capital. You as a giant do not. I feel that this is where the giants do not have an opportunity for several reasons. The seminal factor is probably that the giants have elected to acquire capital to the largest extent possible because of their business goals and this eliminates their opportunity to make money in the markets as related to price movement. I view this strategy of theirs to be a trade off. they elect to use profit centers of having size over profit centers of efficient trading. My money does more work in a day than their money on a prorata basis and I do not share the success and they have to share their success. So I have elected to work just for myself with my money and the giants have employees who work for the giant. As a consequence I do better than an an employee and I probably do not do better than an owner of a giant. There is an exception. To be an owner may take more capital than the capital I have to use to do better than that specific investment by the owner. were the two respective capitalizations "normalized" I feel that I may be doing better. The owners are richer than I am. I feel that this is a consequence of their efforts to build pools of capital and they take a premium from those who provide the capital. This for me is terrific and it is more or less a business or sales strategy, none of which I feel is part of making money from the markets. 3. Timely action is required to stay on the right side of the market. Small fry like me can do this by distributing the capital used at any time to do timely trades. I feel that there are three levels (relative distributions) of trading for a trader when the trader is being effective. Separate capacities are determined for these levels and both the partial size and rate of filling during timely trading is very important. A good example of this not working out for a strategy is the Kingstree approach and how thier traders trade. It is basically an approach of usiong OPM and the conventional orthodoxy. Less than 1 tick per contract trade in ES is the result. Since giants use a vertical integration of their profit centers, "churning" is a strategy that moves capital from one place to another rather than moving capital into the house from outside. summary. It is obvious that whether a peson is a giant or like me, that all advantages of trading must be incorporated in any approach. My advantages include: 1. Having the best paradigm available as an alternative to the conventional orthodoxy. 2. Being able to "see" the markets in two ways: visually and automatically. 3. Being able to be in in the market ALL of the time. 4. Being able to stay on the right side of the market at ALL times. 5. Operating within the capacity of the markets by applying the capital appropriate to that market and distributing that capital across the appropriate levels. 6. Being able to operate in any market with any instrument on any time fractal. 7. Not having to share success with others. For me, I recognize that money makes money. So I do not keep much extra money. as can be seen on the news, there are many places to put extra money to work. Personally, I feel that having as many people as possible putting extra money to work on issues that they feel are important it the best way to supercede things like war, poverty, poor diplomacy, national borders,envoronmental harm, and unmet needs throughout the globe. I am putting forth an effort to drain pools of capital and then put that capital to work where it is needed. The people who have the pools do not do this, so I am having a lot of fun doing it for them.
Sorry, but you lost it on "The science of trading is TA. It is done by coding the logic of the markets and annotating the independent variables." TA is mostly trash. Its believers however continue to prostrate themselves to the indicator gods...
I should word the point I am trying to get accross more carefuly. If a trader is able to estimate risk better than the market risk assigned to the asset [and the market is therefore mis pricing risk on that asset], than by all means it is fine to trade this asset. I am just biased these days since, the only systems that I see that make money are the ones that have model edge and don't care one way or the other whether the underlying asset is risky or not, since that is hedge away [in nearly all cases] instantly. nitro