Why do you think systems must exploit any inefficiencies? This is one of the most absurd things I keep reading all the times in theoretical papers or even in some trading articles. I can only think that someone once said this and many people repeat it without knowing what it means or worse, what is the reason they are stating it. There is no exploitation in any type of inefficiency when you take a position and hold it for as long as you can to make a profit. Trading is all about capitalization and risk management. If you are looking for inefficienies to trade it means one or more of the following (1) Some academic misinformed you (2) You are under-capitalized and need to time your trades exactly (3) You are a gambler who takes huge risks (4) You are trying to scalp or rival market makers There are many ways to trade and make money without exploiting any inefficiencies. Actually, I believe inefficienies do not exit. What is inefficient about any price action? I don't get that. Damn with the academics. Just trade, you should...
continued....... 5) I've met a few people living here in Chicago, one of which I know (we're well acquainted and he lives very well) makes a living trading his own account at the exchange (he has no other job), but he refuses to discuss his methods in virtually any capacity. He has only been encouraging insofar as asking me to take an IQ test and offering to submit the results and a resume to parties who may take me under their wings in or around the exchange. Obviously he is of the mindset that the less who 'know', the better, or is under some kind of NDA i'm unaware of. What is this guy likely doing that he needs to trade his own account from the exchange? I would assume he's trading something at a high-frequency, but that's just a guess based on why he might bother paying for a seat there. I've heard him say he's made as much as 200K in a day and lost as much as 80K in a day (his lifestyle would seem to support the reality of this, but I can't definitively verify anything). If this is true, he's obviously trading size, but what are traders like this most likely doing? Even from a macro point of view? This person is doing two things: letting you down slowly and avoiding fees and commish by renting a membership. You cannot trade to make money the way he does; he knows that since he read you and you are poor so can't afford the perks. He trades intraday market moves by frontrunning the herd. This is called reading the tape or tape reading, both are euphanisms. He uses three components of trading: value, agreement, and supply/demand. Value is measured by price. Agreement is measured by volume (the spectrum goes from none to full where low volume is disagreement and capacity volume isfull agreement). The Depth of Market shows the position of the majority on supply/ demand. your friend is always THE MINORITY. He trades by timing @ market and he front runs the herd who is represented by supply/demand. so far you do not speak his language in any way. He will not be asking anyone to take you under their wing. 6) I've spent time trying to develop systems both intraday and based on daily charts and I've found that while I thought I found something repeatedly, I was quickly disappointed by how checking an out of sample set or walking forward it didn't hold well. It seems to me as if the futures markets almost seem to know what you are trying to do and it changes on you as soon as it's given you too much. I've tried extremely simple unoptimized and complex, highly-optimized rules and find largely the same thing. You will recognize that the market is counterintuitive after a while of repeating what you are doing. You are typical of most. Find out what lagging indicators are; you have that down cold and it does not work. some people go to prediction and screw up that way. there is a middle ground: read what is going on in NOW and fir that into the order of events that the market follows. So far you do not know the order of events. Your friend has the order of events down cold and that is how he trades. Today is an example of the order of event "folowing precisely" Look at the over 30 trades today. On the ES give your self 1,000 dollars for every point. Give your friend 5,000 dollars per point. Or don't. It is your choice to get real and begin to get to work instead of talking. I've tried very hard to avoid model selection bias and curve fitting traps; wrapping an idea around a chart rather than gazing at charts looking for non-existant visual patterns, but I still largely come up empty-handed. Why is this? You do not know what you are doing and you do not know what you must be doing. Can the markets really be mostly efficient? If so, how do those who claim to daytrade for a living make livings? Is everyone here lying? I would assume many are, but who isn't and what are they doing to get an edge? Again, I don't expect someone to show me tick for tick how to do what they do (although that would be spectacular), but how does one obtain their edge? I've looked at price, time, removed nearly every indicator, removed myself mostly by shooting for a mechanical approach. I've spent hundreds of hours poring over charts and books. What is it that I am likely missing? there is a whole range of people on ET. what you are likely missing is an orderly approach to thinking critically. you are deeply committed to the CW at this point by your past choices. Now you get the consequences. This is not reversable. How a person does a workaround from a false start is a difficult matter. Most people turn into people like the detractors here or people who just come and go here. Thanks for the help, sorry for the ridiculously long first post, and take it easy on me.
Hi, I may not be a trader per se, but one thing I do know is that to obtain excess returns requires one of two things: Luck and/or an advantage (read edge). You can't simply do better than the market without one or both of those. If you personally make consistent money trading, I suppose this proves you don't need to understand how you make it to make it. However, it doesn't negate the fact that you still either require luck and/or an advantage; even if you don't know what the advantage is. It really makes perfect sense when you think about it, so I'm interested in your distaste towards the notion. Your descritpion of what you do "There is no exploitation in any type of inefficiency when you take a position and hold it for as long as you can to make a profit." indicates at least seemingly that your advantage is catching trends or "trend following". How is this exploitation? Well, if you didn't utilize skill to determine where the trends start and end, it wouldn't be. Seeing as you're able to ride said trends consistently requires skill that most traders don't have and apparently most fund managers don't have. So, unless there's a compelling argument against these presumptions, you have an edge whether you like it or not . You might not find use in the label, but it is necessary, even outside of the academic realm for those that are empirically-minded. To make this rebuttal more clear, efficient market hypothesis essentially states the markets are largely random. So random that consistent excess returns are impossible. I don't necessarily believe this or I wouldn't be here. I tend to think markets are more random than most traders and wannabe traders want to believe and far less than most professors would have you believe. This is where my interest and skepticism are bred. I am really seeking to find a means to propel myself closer to one of either extreme. Anyway, EMH would suggest that even if you find trends to ride and exploit those that you will almost certainly pay later for your joy ride simply due to the efficiency of the market (it won't play by your rules long enough to let you take money from it repeatedly and predictably). To avoid this requires an advantage over others (an edge), else everyone would simply do the same thing which is of course impossible. I am honestly seeking a development of what I know and what I think I know, and do not intend to argue. I am perfectly willing to be wrong about anything that will help me. I hope I don't come across as if I aim to bicker. Thanks
Right on. I hope he can reflect on your message. When someone suggests to the OP, he is trading trends and uses volume as signal generator, how can anyone reading that suggestion think ineffiencies are involved??
Have to disagree about inefficiencies. Take a look at S&P500 addition/deletion thread run by talon; a well known inefficiency arb situation known for years, and apparently still works well. So there is more than one way to skin a cat. That happens to be one. On the other hand, people don't seem to accept nor understand the concept that edge can also exist in randomness as well.
Interesting point about edges existing in randomness. Care to elaborate on that. I can conceive of such things like the trendiness of a random sequence, but possibly you have something else in mind? Thanks
I could be persuaded, but I'd guess that you'd have trouble convincing about 90% of the academic community. Of course they don't have to be correct, and in fact I hope they aren't. I do find it surprising that such an educated bunch would have it completely wrong. With that said, I really do hope they are completely off base.
I gave a perfectly replicable example ( a rarity here) in an earlier thread on randomness if you care to do the digging.
Hi Jack, I like your optimism about daytrading. I will look more closely at the ES, etc and see if I can work out a way to take a point away each day as a start. I will watch YM as a leading indicator for it as well. As far as Gallacher being off base, that is certainly possible, but it seems as if he's a pretty highly respected guy, so it does create a bit of cognitive dissonance thinking of him as misinformed. I am here to learn though, not to stand relentlessly by anyone. Could you elaborate at all on the comment regarding smart money as a leading indicator? Any hints how this might unfold? You seem to suggest the bounds of which I am considering are narrow. Any examples of how to adjust my means of observing the markets as you point out? Thanks