I completely agree with you in regards to the true definition of arbitrage. But what I am referring to and what I think most people mean when they use the term, is any strategy that uses statistical methods to generate trading signals. As for co-location, I am not going to be focusing on hfT cause I don't believe there is an edge there for me. I am working on ideas that basically gets signals on daily prices that I am then able to use on a intra-day time frame whether its pairs trading, ETF vs components, mean reversion. I understand that I am not able to compete with the hedge funds and prop desk that co-location servers and hundreds of millions of dollars, but I think that me being small with a few hundred thousand in buying power that I able to develop strategies that a lot of these guys over look. But like you said I am going to give it a try and keep going till I find something.
Can you explain to me how it is that a lot of graduates of hard sciences (Math, stats, physics, etc.) are able to get jobs at hedge funds, investment banks as quant developers/traders without a finance/trading background? I don't have a phd, but I feel that am at a graduate level in regards to applying mathematical and statistical methods (data mining) to time series, as well as being able to program in c#, R and mathematica. Maybe I am missing a huge point here, but why do I need to learn how to trade manually first? I am not trying to be a prick or nothing, I just don't see how this is going to prevent me from going down the path that I am.
Don't mind that, they're just mad that you're not going to go through the same stuff they did/are, just different stuff.
i will give a simple (may be its not that Obvious) example, WHat is the difference between a Race car Driver and its Engineer. Big difference. However, the fact is that both need to know each-others functions and limitations. You can be a better engineer when you understand what is that the Race Driver will need or DO. Also, get an understanding of the Track and its conditions. Math majors/Phds / programmers that are hired at hedge funds serve different purposes. Phd guy analyzes the information and tries to FIND a statistical edge and then the Programmer programs it. More than the programmer, Phd guy needs to understand what traders do, how do they think, how price behaves. they come up with what is based on the HISTORICAL data and work with ODDS. Now with so many players all trying to do the same thing, they have ran the lake dry. Statistical edge is either minimal or GONE. They have been doing thsi for 20 yrs now. "Statistically" & "ON LIQUID DAYS" HFT's will soon become NOISE. Their actions will average out. What will be left then ?? Good OLD money moving the market. Big moves is where the money will be !! Do you not ALREADY SEE this happening. I might have Blab'd beyond my experience Well given what i said above might be discredited. Since, You do not have the capital to move the market, learn to trade and understand price action and larger market cycles (bulls and Bears) You will find your Trading Edge and then you can program it. I am not against programming however, when a 6 sigma event happens- manual trading can save your ass.
I get that feeling sometimes that is why I take everything with a grain of salt. I just want to learn so all advice is welcomed. Whether or not I agree or understand it.
Thats the right attitude. Our experience influence our thinking and decision making. Even though you can read the words on ET, you can only truly understand it when you experience it yourself.
Isn't that Boolean Algebra the nuts for handling the independent varibles of the market. Who would have ever thought that it all came down to four gerunds. Didn't we all really luck out because all markets have a limiting granularity. One of those very cool things back in the 50's was getting statisitcal mechanics to simulate integral and ifferential calculus. that was really a rush to have to face the fact that continuous functions were not hoing to be the way of the world. How far away from Peggy's Cove are you?