I've long belived in efficient markets and I thought it was proven case-closed that active trading was a suckers game; like alchemists trying to make gold. In the carnage of this past month, I came across a situation that appeared to be a free lunch in the market that shouldn't have been there. It was a low-risk way to squeeze out a couple percent per week. And, it appeared to be obvious and fairly easy. I think this situation still exists, though the profit should be much lower as markets stabilize. I am continuing my active trading pursuit on the premise that it is possible, which is exciting considering that I am indoctrinated with the academic viewpoint of efficient markets. I have my own non-trading-related business which takes a few hours a day and earns me a low 6 figure income. This combined with frugal living and passive investing is how I have saved up. I don't enjoy my business, and feel tied down; though the money is great so I'm not really complaining. I just thought I'd post this introduction to those on elitetrader, many of whom seem to be profitable active traders (something I didn't believe could exist only a few weeks ago).
Opportunities will always exist. They may narrow down considerably but that is only temporary. If you are of the mindset that you need to rush and deposit lots of money to get quick cash you are setting up yourself for failure. Instead of the usual advice to paper trade, open up a 2000 margin account and let it rip for a few years that way you learning the real thing.
Let me be the first to welcome you to the board. PP1: It may seem like a sucker's game, due to the fact that so many people fail at the venture because they don't have the resources (capital, tenacity, family support, etc) to endure the process. PP2: Many guys on this board have had an October which has rivaled their previous years of profitabilty. There were obvious ineficiencies in the market which were available to those who have been around. Please do not assume these opportunities will be as plentiful in any months within the near future. PP3: You said "I am indoctrinated with the acedemic viewpoint of efficient markets." This will be an easy fall-back postion if your endeavor is not successful, but it just ain't true. PP4: Your frugality is admirable, and indicates discipline, or the simple fact that you don't care about material things. Both of which are important when taking on trading. But keep in mind, disliking your current situation is a VERY BAD reason to pursue trading. You need to be consumed by the process, and the love of the game. PP5: I am profitable, therefore it is definitely possible. (Maybe I need to start posting in the P/L thread again regarless of how uninspiring my numbers were). Good luck, but remember this: Frustration is part of the game. As you are learning, trading, reflecting, throwing shit, etc., remember this little tidbit, and it will allow you to take every signal you see. Good trading. Jeff
Good Q. I may have been looking at this from way too much of a generalized perspective. He probably sees something very specific.
I think that one of the most important things for anyone to keep in mind is that the market not nearly as effecient as academics and their theories suggest it is, but also it's a hell of a lot more random and effecient than most traders want to make themselves believe it is. The trick is to do exactly what you did, be patient and wait for the non random events that can offer a profit for you, and remain sidelined the rest of the time. Good luck.
Good comments. Abstaining from trading is the difficult part. There are a lot of costs involved in trading that make it a very losing proposition in the absence of an edge (better than random). Keeping disciplined enough to wait for those better-than-random opportunities make it worthwhile in the long run.
<i>"what was the arb situation?"</i> Obviously you asked this in jest. As for active trading and edges, they exist all over the place. It seems like forever before we can even find one single edge that's repeatable. Once we do, that unlocks the mystery of tradable edges everywhere. Markets are very seldom efficient. They are often sloppy to an extreme. The problem is human emotion able to be harnessed for taking advantage of such. Profitable edges exist in diametric opposition to what logic & reason deduce. Contrarians are actually the sheeple, ironically enough. Once you figure that out, finding their stops clustered on a chart and riding the winning side of their consistent losses is easy.