Just some reflections here on a quiet Thursday afternoon, nothing more than that... One of the more experienced posters here, Garachen, posted a long time ago about Why Strategies Make Money. He cited the following as a viable way to take money out of the markets: "News dissemination. Complex news comes in many formats. Not everything is coded up to be machine readable. Standard news needs people to interpret and act. Usually you have about 2 seconds for standard products and maybe up to 10 seconds for less obvious products." I traded unsuccessfully at a UK based prop a few years back. Subsequently traded solo with marginally more success (semi automated strategy in futures), but not nearly enough to set myself on the path to financial freedom. For the last 3 years I've been gainfully employed, but the sense of having 'unfinished business' with point and click trading has never left me. Furthermore, as many readers will sympathise with, it is very difficult to accumulate tangible wealth when you live in an expensive part of the world and it leaves you wondering if 'survival' is adequate compensation for giving up your time, Monday to Friday. If I could wind back the clock and trade again, I would live by the following assumptions: - all other participants in the market are smarter than I am. - they are better capitalised. - they have the ability to disguise their actions from me. - they have a keen awareness of where I am likely to trade and where I am likely to puke. Furthermore, going back to Garachen's News Dissemination point, I also assume the other participants are getting better at automatically reading and trading even complex news. On that basis I sadly expect squawk services to become progressively less useful. If the assumptions above are accurate, I feel the only sensible time for me to execute trades should have been on those rare occasions when other participants were trading with such urgency that they did not bother to disguise their actions - the result being a sudden and obvious rush of orders hitting the market - most likely in response to breaking news (i.e. not scheduled economic data!). If I could send a message back to my younger self it would therefore be something along the lines of; "disregard candles, trend lines, dalton's market auction theory and the rest of it - even if your Prop mentors say otherwise. Just sit there patiently watching only the price ladders, and be ready to hit market at the drop of a hat... if and only if all of those price ladders start suddenly moving in unison on the back of floods of orders. If you hear RanSquawk suddenly begin to say something, all the better (but don't bother waiting to listen to what they actually have to say, by which time you are already too late to safely enter the market!)." As far as closing positions, I would adhere to the simplest possible rule: if the position is onside, keep it. If that means you are sitting on your hands for the next year as a good position gets better... so be it. If that means you endure fifty trades that go onside and come right back in your face, a minute later, a day later, a week later, so be it. Maybe the above wouldn't work, who knows (does anyone know from experience?). I'm not sure that I've ever encountered anyone who takes such a simple, boring approach to trading, but saying that, I do feel the consensus view is not the view that leads to financial freedom.
So, when do you close the position? If you let it go on forever, it's not really trading anymore, no? Also, if we consider everyone else in the market in aggregate, doesn't everybody, even the biggest and the best, face these same adversaries? It doesn't matter how big you are, the collective wisdom of the market should know more information than you, the collective market has more money, and its intentions are obscured in its thousands of participants. As for the fourth point, I don't know if that is useful knowledge. Someone takes the opposite of every trade...so who is right?
Yep - good points. Particularly your last. There has to be someone on the other side of my trade, even when I think I've finally found the moment to make a good one! I guess the markets may become more explosively reactive to breaking news, i.e. machines reading complex news and instantly placing trades, whilst market makers doing the same and reducing liquidity
On the two major news events this year (Brexit and Trump) a good manual trader could have pretty safely doubled their money on anything < 500K with pretty little risk. Not taking large positional bets but watching for algos to get turned off and then waiting the appropriate amount of time to step in a provide liquidity. So, yes, I think one could make a living trading only events like this. It just doesn't allow much room for error and the pressure might cause you to screw up if you depending on only this for income. Personally, I got pretty screwed with the GE move a few days after the Trump win. In hindsight, it was a pretty obvious play to make (for the guy who took my money) but he did his homework, saw the opportunity and forced me into a position I didn't want and couldn't get out of. He won, I lost.
hypothetically a lot of losing strategies should be profitable if one thinks in terms of *waiting* until the algos which normally destroy it are turned off. Tho in my experience, without saying exactly what I'm picturing, most traders wait til their favorite algos are on ...rather than off because it's easier to see algos when they're present. It could be difficult determining when those algos are on or off but recognizing this on off state exists ...is imo the root of successful trading. I didn't have that knowledge a moment ago when I began this reply so thankyou for your post. Algos have their favorite spots where they're present, where they appear and similar for where they disappear. Wash, rinse, and sometimes reappear. It's very easy to write about. If I thought it was easy to do in real life I wouldn't mention this is what I see happening throughout the day. I've known for some time I was looking for a way to determine when to be in and when to get out. I have a favorite conditional state I prefer but throughout the time I've spent looking for how to determine when that state is present I've neglected to think in terms of whether the herd of algos which are necessary to sustain that state are experiencing the technical events which trigger revert to waiting mode. There's only a slight difference between looking for conditions which trigger optimal entry exit vs looking for conditions which trigger a herd of algos. It's almost semantics. Or Philsophical. ..but it's only the beginning of a new, more correct way to see, why most strategies fail and why strategies work. Seeing correctly is where it all begins because everything grows and grows. Even seeing incorrectly.
Your assumptions are correct, but you miss the fact that the 'players' have the news early either by outright deception or by their own analysis techniques due to increased available capital to buy knowledge and services. Know this because use the latter ourselves (except we're the ones people are buying that knowledge from) and can see price movements setting up before the event, sometimes days in advance. So yes, they can hide their actions better than you can see them, the news changes the time not the price, unless they make a material mistake in their analysis. The consensus can be correct in that if it's mass hysteria you don't walk the opposite way to a stampede, but if it's more disorganized then that's where the money is because confusion leads to contempt, and contempt leads to mistakes. The one who makes the least mistakes is the one who generates the capital.