On trading oneness

I have written many times against the evils of HFT trading and repeatedly said something like what happens to one, happens to us all.

This is an interesting article for me.

http://www.zerohedge.com/news/2013-09-13/what-has-your-equity-hedge-fund-manager-done-you-lately

I think that the implications are profound. Low volatility, low volume, low vix (perceived risk), high correlation. Traders not really believing. Leaders not really believing. A failed experiment in FED money printing. Elites desperate to cover up the writing on the wall. For sure the leaders must see it also. If they really had fixed the issues in 2008, would they choose an environment like we have today or an alternative?

The fundamental issue seems to be the lack of diversity and the resulting "brittleness" a system gets. As I use it, the term is from programming, a bad program is unable to absorb shocks of small magnitude but instead fails catastrophically. A diverse system is not as brittle as it's alternative.

I sense that this is big trouble and I feel uneasy, although I am not sure precisely why yet. Leaving that question in limbo, an answer will likely eventually come. I am interested in any thoughts ET might have on the implications and particularly the future of our trading.

 

HFT is the new trading technology. failure to understand results to loser.

u can't stop technology. u can't stop cme shutting down the floor



HFT will blow small traders away





More than 90% of small traders lose! They just lose!

 

I don’t think the article mentions HFT. And I don’t think HFT is the reason hedge fund returns are less stellar than they used to be.

IMHO it’s a simple matter of a crowded market with very many funds doing - essentially - the same thing.

That is to say, a trend is a trend whatever gazillion different ways or indicators or methodologies you use to try to detect it and jump on … and similarly a mean reversion is a mean reversion whatever gazillion different ways you might use there … and so in the end, every fund is trying to jump on the same trends or mean reversions …. and it’s too crowded for every fund to be a winner every time.

And a focus on “risk adjusted returns” (rather than absolute returns) means most funds have no stomach for drawdowns, must shy away from leverage, and can’t just stick with a strategy until it starts to work again. So, for most of them it's bound to end in tears ...