Hi all, Having been working on systematic prop trading at a shop for a while, I would like to hear your thoughts about developing an edge in trading. Do you think digging deeper into the fundamentals of the energy world will lead to an edge? On the other hand, I can of course stay at the systematic/technical/quant level - there, what I learned are things like backtesting trend-following, mean-reverting, stat-arb, pairs-trading stuff. These techniques are okay, but will I be able to improve my edge if I gain deeper understanding about the refineries, pipelines, chemicals, etc? My background is half economics and half quantitative science and I have lots of interests in both the fundamental and quantitative worlds. I just wanted to know where I should better spend my time studying... The oil traders I've chatted with seem to care more about sentiment and flow, gained thru social, drinks, parties and chatting with their fellow traders. Please shed some lights on me. Thank you!
Very hard for me to understand what you want to do exactly. Sounds like you are trying to get some ideas while at the same time not revealing exactly what you do or will be doing. For example: - what are you trading? Spot, futures, crude, products? - what is your timeframe? Intra, position, longterm? How can you expect anyone to give you advice without the proper info? and something more: - what are you going to offer to someone in return for helping you in making a carrier?
Good questions. The vagueness of my question lies fundamentally in "systematic macro trading"... it's about everything in futures. So in fact, all the commodities and financial futures. And there is no limit to the time frames. The question I am having is: will I be able to develop an edge by studying deeper into one special area, for example, the energy sector, the supply/demand fundamentals of crude oil and products, the refineries, the pipelines, the chemistry, etc. My offer: some drinks if you are in NYC? :=)
mizhael, I'm a strong believer in the concept that everything you need to know is reflected in price. As for day trading, fundamentals are meaningless, just follow the trend in your time frame and let price dictate the trades. But even with swing trading or longer term position trading, the problem with using fundamentals to trade energy futures is the bigger picture is affected by so many different "fundamental" factors that can pull price back and forth in some wide swings: China tightening (reduces demand), oil nations' strife (reduces supply), PIIGS in trouble (reduces demand), US economic reports swinging from good ("make 'em pay!") to bad ("they're cancelling vacations!") and back every few weeks. I've posted this on ET before: In the past I'd pay attention to news reports and form a bias based on them. The problem is that MY bias isn't what moves price; it's the bias (news interpretation) of the majority of asset managers and serious hedgers that moves price. So I'd see a bearish crude inventory report hit the wire and I'd watch for a short setup. Sometimes I'd sit and watch most of the day's session before a short signal appeared. I'd let 2 full points of up trend pass me by while I waited for price to reflect my bias. As a day trader my job is to trade price and extract as much profit from the price swings as possible. I should've been pocketing a good week's pay off post-inventory moves and I was sitting on the sidelines. In the past few months I've traded into and through major news reports many times, knowing that price is all that matters. Price reflects what the majority of market participants are doing at any given point in time. I also ignore Goldman and JPM making their oil calls, because I care more about what their energy trading desks are actually doing, not what they're saying price should do. Last week Goldman said the recent correction in oil was setting up a good buying opportunity, and price commenced to drop more than 6 points from there, closing the week at multi-month lows. I'm glad I didn't sit around only trading to the long side
The best edge you can have is common sense and unfortuantley alot of people will never have this edge.
Anybody who went long on that Goldman call got smoked. It's possible that the Goldman analysts were saying buy oil when their prop traders were shorting it.