I've noticed a few levels of curiousity re: trading. Chronologically speaking, the first was the Coat tail aspect. As a corollary the brokerage went national with the coat tailing and embelished their "recommendations. The SEC fined the national office And two CEO's had to make a joint statement publically. The companies were IBM and Tang. This all was in the telephone era. (charts were drawn by hand so that was a remendous advantage for timing. The way the coattailing got started was by broker agents talking to each other and that about 10 accounts in the local brokerage were trading the same streams of stocks. The brokers in the 50's could be thought of as "tipsters". In the 60's, I strated using stocks as collateral for major sports purchases. At that time I could trade the security stocks using a "street name" deal. I bought a B class sloop (Kings Cruiser US 122) on a 100% 2 year loan, interest only. At loan payback I had more than doubled the loan account collateral and the manager of loans a Fairfeild County Bank and Trust had no idea of what was going on except to say I was oversubscribed on the collateral. For 25% of the time period I traded consecutive stocks on the NYSE to get a rise out of those who monitored. In those days trading was not looked upon as a good thing by banks. They did not share my progress around the bank in Greenwich. The crunch in trader monitoring first came when the SEC got computerized (long before quants etc). At that time, I was running @ the NFA limit for amateurs (section 206). I played golf and skiied with the head of the SEC socially. we never made a connection to my accounts being monitored; this was more about NY society. He married into the Cooper family. By having multiple POA accounts and having a high velocity return, This set up came on the radar via larfe brokerage house monitoring. The coat tailing was going on as well. Probably it looked like a trading wave then another coat tail wave on both entry and exit (in stocks). The SEC is fairly convinced that they know what they are doing and they do not make mistakes when they act. That seemed to be true at the time when I sat or phone conferenced with broker lawyers. the citations come down through brokers to their clients. It seemed like the SEC knew the my POA's were coat tailed by the brokeragehouse. Also there was a history at another large broker where the SEC had fined that (different) broker.. SEC and I had two different goals. Personally, I wanted to see what was wrong in their suveilance coding and they wanted to convict me according to my profile as an insider trader. They could NOT consider I was Not an insider trader for many citations. Those here who are technically alert can see the mix up clearly. The EC's net was very coarse and insensitive to expert parasitic front running technical trading (See Larry Harris, page 199). There is no chance that the SEC knew what I was doing AND they were just using some "profile" that they made up. I trade on leading volume signals they do surveilance on large multiaccount purchses that happpen BEFORE price begins to take off. Brokerage lawyers would NOT request the SEC survailance programming so I could "fix" it or "tune it". On the otherhand the SEC did not reverse engineer anything I was doing atthis yime before PC's and printers were invented. Coming into the last 25 years. Brokers on commodities trading worked by phone and there was a lot of coat tailing. No emini's at that time. Here is how it went. Floor people wanted to serve their accounts. A method for us to do that. I had three traders who handed my cards. It was all C&R in nature. 10 items (facts) were handled. I had voice recognition so did they. No one ever got into anything except the trading and the coat tailing. some times there were late afternoon casual remarks.(wow's and holy shit days). I used my Architect's studio set up to plot two 30 minute charts which overlapped by 15 minutes. Techical people will get the drift of this method of carving turns. (projection forwad then bac to upcoming split bars) A 10 minute "call back" from them was standard; they made a tentivie card and I either acted or they threw in away. On the other hand, I predialed my phone all but the last digit and I had a 10 row log where I noted the upcoming C&R ahead of time. For example thraeding the three legs of an FOMC could net 300 per leg on the large DJ contract per contract. this odd harmonic trading and there is a fills issue present on the phone. I had precedence for "holding" on the phone until my new fill was done (this is reversal tradingNOT Entry/Exit). I had POA's so bunching was done. When the trading went electronic on PC's and sattelite disks (I had two 36 inch discs), then is when the "reverse engineering" issues began to show up. disks were one way streets. Orders were not done on satellites. So I used three phones at that time. Phones had gone "local" by then so they were just open lines at the base phone rate. At that time reverse engineering was a myth. As the web bandwidth got sufficient, then people changed. Most ET'ers are this modern sort. there is a lot of "getting" BUT not to worry, stupidity prevails as a rule. So the reverse engineering dissappeared for serious traders through technological means. And the quant era has moved down to the "scraps on the floor" of HFT type stuff. It is so neat to see so much power being used on so little potential. Dodd - Frank regs are hitting the discussion stage at this time and markets will be a little more transparent and as a consequence much "smoother". for me, I am insulated fiarly well from those who want to steal and "get" stuff. By hanging in there with binary and using first derivatives to get binary vectors I became unobservable to the CW probabilistic community. You cannot suveil a system unless you use a compatible data system for the surveilance. 1's and 0's and non prediction as an orientation, is totally incompatible with "mining" as it is called today. Protecting one's IP and TS is done most eaily by having a langauge that is foreign to CW of the Financial Industry. the three basic trader problems espoused by Behavioral Finance are irrationality and over and under reactions. coding and programming of the financial industry hes these things nuild intop their mediocre performance.
I've presented my trading strategies on a silver platter on ET and in individual one-on-one conversations with people and nobody will trade them. I guess human nature provides built-in protection
that may be because your strategy is still within the text book and needs lots of discretion. for a high profitable mechanical system, that could be different.
brokers like large firms have their own strategies that fit their scale. a trader with $10,000 has different strategy than hedge fund with 100 million dollars. they have all the strategy that money can buy. there is no secret that they don't know about. the business model of these market makers is trading against client that is their strategy and business model. in trading the only money in the 'pot' is trader's money. these market maker can't or don't make enough money from mutual funds who never trade. or rarely trade. and they never go through the market makers.it over the connter trades. in a way these market makers can't make money from guys like warrent buffet. or don't make enough from him
there is no secret that they do not know about? It is not true. who knows how james simon trades? we are talking about the case where the trader has a real exceptional strategy, not the one that is based on MA or RSI with different parameters.
The thing about novel innovation is that it doesn't seem that novel once it is known. If a strategy is a variation on a theme, then a little system performance data goes a long way. For example, if you know what pairs a pair-trader trades, one can coat-tail just fine. With a little more effort, one can probably reverse engineer approximately how they came to choose those pairs. I do not believe that someone could have reverse engineer the Black-Scholes equation by watching trades. The idea that one could build a synthetic option was novel. I have a long-term trading system which is an adaptive channel breakout system with a few tweaks. I am sure that anyone looking at the trades could figure that much out. I am so confident that no one can figure out how I adapt the channel that I publish the whole back-test. How many times has a friend of yours gotten made about some new product on TV? "That was my idea!" A friend of my told me about an engineering firm that specialized in designing the tail section of airplanes. This firm had a virtual monopoly, and when asked how they protect their intellectual property, they said there was only one strategy available, out innovate the competition. Lots of people have lots of ideas, but you have to run with it to it is just wasted.
even we agree that a "novel" at least is known by few traders, thus it is not truly novel in terms of scientific discovery, it is still important for the traders to guard those systems so that fewer people know it the better. regarding the difficulty of reverse engineering the system, as long as the system is truly exceptional, there are people willing to invest efforts to decode it. even if the decode part is not 100% identical to the original ones, it could be quite close, thus damaging the profit potential of the original systems. since the market is a zero sum game, some one gains from your system, you lose.
I disagree. Otherwise every trade; barter, purchase for cash of anything you consume, etc would be zero sum. What is the engine behind commerce then?