"The most important comparative advantage that a manager or trader should have is a thorough appreciation of the need to have a comparative advantage. Traders who do not understand why comparative advantage is important will not consider whether they have a comparative advantage before they trade. If they do not consider this question, they can have no reason to expect that they will trade profitably. " (Larry Harris, 2003) What is your comparative advantage? This does not mean a tested method or self- discipline. It means to know against whom you are trading, and why he/she is going to lose against you, even if he/she/them also have a tested method and self-discipline.
Good to know that big swinging dicks do not become an endangerd species. Makes it easier for me conceive my comparative advantage.
Absolute rubbish! The market is made up of rational and irrational Traders each with a plan. They trad for different reasons using different time frames reasoning and data. Some are intraday and some are position. Some trade to take profits and delivery and some to hedge. In short the markets are chaos. Who cares about other Traders and who cares about comparative advantage. I have a plan and when I apply it to the ES morning session , it mines points for me every day. I dont give a dam what other people are doing. I simply watch the bid/ask action and it's effect on the ES price.
So, you are profitable (almost) everyday and do not know your comparative advantage? For how long do you make a living trading?
Larry, a local resident, is defining a term that is applicable to a view of trading in markets where the participants are all operating in relation to the conventional orthodoxy. This is a fine way to reason and operate but it is no longer the whole consideration for traders. It is the norm for those who view markets to see and analyze them by using the conventiional orthodoxy. As has been pointed out, what Larry says doesn't make any difference to those who are trading outside of the realm he is commenting upon. Those who play the market as a sophisticated game are limited to assuring that they have a comparative advantage over like players or managers. It has ben pointed out to you that others "mine" the markets. "Mining" is a well chosen word to describe one major alternative to playing the markets as a trader or manager. As has been spoken here "What else is there?" as an expression to exclaim that the Larry Harris viewpoint is the only one. There are a spectrum of methods for trading the markets. The gaming approach is used by many traders and they account for most of the statistical performance characteristics of trading performance. Hence Larry's comment as he documents the market's workings and how treaders trade. He was the boss of SEC at one time and is renowned in the academic community. Stepping outside of the box Larry has built on conventional orthodoxy, the mining goes on with out regard to the conventional orthodoxy , except to anticipate it and trade accordingly. It is as if a whole system of participants are doing something that is available to observe but not join and do as a common practice. It is probably like watching the Civil war from a nearby hillside and then having the results of the warring serve you purposes. Not a nice picture but seeing trading as a place where there are a lot of casualties from playing the same game on different sides is a good idea. Mostly everyone is a loser on the battlefield, especially individuals. Everyone has the right to go see the battlefield. I cannot imagine that anyone would want to go down and play on such a field if there were alternatives. How can a person profit from knowing how the trading war is fought? The transparency of traders using the conventional orthodoxy is startlingly clear in this presumed short term zero sum game. The rules of the markets simply allow a person looking at the war from the hillside to always extract profits from those who are losing at any given time. This is called in any book on the subject: rule #1. Always be on the right side of the market. You see the right side of the market you stay on the right side of the market. It is vey clear and always noticeable that the conventional orthodoxy traders are always on two sides of the market. One group is losing and the other is winning. These people are there either making money or doing the traditional "drawdown" by staying in the market and losing. These people seem to be right there in the pitch of the battle "sticking to their guns" with edges, sharpe ratios, R/R's, protective stops, and drawdowns. Edges come and go we are told. If you can stand on the hillside and see this carnage day after day, what is the incentive to go and battle when battling is not necessary. I think the picture of the miner with a pick and shovel and a mule is a good one. And it can be put on the wall right above the modern mining tool, the computer that can discover any pool of ore anywhere in the world at the speed of light. The Civil War illustration is also updated by the same means. A potential trader can sit at his computer and choose to fight war or mine pools of ore. People who fight have a 90% casualty rate. What do people who mine ore get? I call it pool extraction and use a pipeline analogy. How difficult is it to switch from fighting to extracting? It is very difficult because there is a tradition that goes so far into the past and so broad in its acceptance. The conventional orthodoxy is going to prevail and those doing it find great comfort in this conformity and the results acheived by their standard setters. For those mining and extracting the huge capital pools, the transparency of the conventional orthodoxy "action" makes the job much more constant and pleasurable. Mining and extraction is not done by entries and exits and all the accompanying bells and whistles of gaming. Instead it is done by contining to stay on the right side of the market and then reversing as the market direction changes. Stand on the hillside and see the battle ebb and flow; see continuing casualties who suffer by being on the wrong side. Walk away and decide to trade by making it a point to always be on the right side of the market. Trading platforms provide for an alternative to entering and exiting. It is called holding and reversing. By viewing the transparency of the conventional activity, you can be in the market and continually build profits as the market moves in a given direction; ech time the movement comes to and end, you can take profits and begin the next market movement on the right side of the market. For most, the lock that the conventional wisdom has upon them does not make it possible to consider mining or extrraction from pools. Converting to holding and reversing from enties and exits is just not a posibility. How would it be possible to look at the screen and examine what is going on from any viewpoint other than the conventional gaming orientation? It is just not possible. What does a person look at who is oriented to extracting what is available? He looks at two things: continuation and change. He looks at the market as a scientist looks at the material world. Picture two people looking at screens one is gaming and the other is doing science. Look at two childeren looking at screens: one is playing a game the other is doing science homework. Which is more purposeful? which is the thing a person wants to do? A lot of people LIKE to play the markets; others prefer to take money out of the markets. Some people prefer to use probability and stats to analyze the markets; others prefer to use effeciency and optimization for extracting what is there. How can a person examine the "continuation " of a price movement? How can a person examine the "turning point" of a price movement? I regard these as two doable considerations. Fortunately, they follow the P, V relationship. A rational consideration of market behavior stems from the relationship of the variables and how to optimize taking advantage of what the market characterizes that it does. This requires stepping out of the conventional orthodoxy. I was fortunate. In a state of almost total ingnorance, I began to look at the market from the viewpoint of making money. It appeared to me, from the beginning, to be a mining and extraction process. I have educated myself with a perspective of learning the inimate and deep relationship of the variables of the market. I see the price variation as the potential of the markets. The huge capital pools will never be affected by anything I do. I just extract all that is available to me as it becomes available.
ME, I dont need to know anything about comparative advantages, mine or anyone else's because they have no place in my trading world. I am not interested in whether other people make or lose money, I am only interested in what I see on my screen. The fact that my screen shows the collective aspirations of many traders and their margins translates as numbers only. All I am focused on is the application of my plan during the first 90 minutes of the RTH ES. I am simply mining points per lot from the market until my target is hit. If the market is directional (like today), I hit my target quickly and with few trades. If it is messy, it will require a little more time and several more trades. I do not subscribe to win/loss ratios, scale in/scale out, RSI, MP, elliott waves, moon phase or expensive software. What I do subscribe to is that if you incur a loss then you have to make it back before you can move on and so I need to see that the other side of my next pending trade is washed out before I enter. I have had an interest in the markets for almost 10 years now.
Fearless, I guess a lot of traders - even very successful pros - do not know their comparative advantage and it becomes much harder today than it was perhaps 20 years ago. In the pits you could say my comparative advantage is that I am taller than most other guys there, be more pushy, know all the important players and so on. I think you must have a comparative advantage in order to succeed but how should I know who are all my competitiors? But you can have a comparative advantage if you are a small player and are able to nimbly piggyback the order flows of the big guys.
By "mining" I mean that I dig points out of the coalface of the ES morning session. Each trade could be one point or 10+ per lot. 10+ would be rare. All I need to do is reach my daily quota per lot ... nothing more, nothing less. Traders who are far more clever than me will tell you that my style is primitive and they would be correct. However I try as much as possible to avoid banking a loss for the simple reason that I then have to make it back again before I can move on. All I am focused on is making my daily quota and then buggering off for the rest of the day. If I have a comparative advantage it is for someone else to describe, not me. If anyone asks me "what is the one single piece of advice I would offer to a wannabe trader" it is this "Get focused" Now "focus" is many things to many people and some may bring more focus to their trading than they have ever applied to anything else in their lives. Sadly, very sadly it will fall way short of what is required to be constantly profitable and they will lose eventually their account. They may even lay the blame outside their own feet. If you look carefully at the lifestyle that the so called 1st world has created, you will see that it is abstract, very abstract ..... full of diversion and distraction which moulds peoples thinking as indeed it is designed to do. This is not focus and if people bring their daily thinking patterns into the trading room then they will eventually doom themselves to failure.