Stealing a strategy is not as simple as you make it sound. I personally know an option trader who is also a money manager, he is registered with the NFA. If you are a client you can see exactly what he does and you could try to learn what he does and even place at a later time the very strategy on your own. Guess what? He does not care. All you have is his strategy es diagonal spread, iron condor etc but you'll never know why he opens it at a certain time or closes it. The opening / close of his trade is not discretionary but it is part of a proprietary system he developed over 10 years and mirroring the very same strategy will not give you the same results because you still do not know when to employ such strategy. Why did he get in today, why last week he was out of the market, why one of the spreads he had was buy 1 put and sell 2 but the other was buy 1 and sell 3 ? My 2 cents is that there are many ways to make money in the market, but they are all very difficult to find and it takes much more than copying a strategy or and to look for a logic behind it. A parrot is able to speak and pronounce words correctly, but it does not make any sense in a conversation.
I decoded a profitable trading system my self, though it is not trivial, and I could not say I have reverse engineered 100% identical to the original, since i do not have too many trades from the system, but I can design my own profitable trading based on the decoding.
This sounds very exciting, yet I have no "real world" idea of what you mean. Care giving a basic example of a non-stationary strategy adapting to market conditions?
in your case, the number of parameters is not three, since there are too many other markets like USD/EUR. we are talking about a trading system based only on one candlestick chart.
for example, in one forum, I often followed one guy who posted real time trading signals on stocks. I know he traded on candlestick chart. so every time he posted his signal, I checked the chart, most of time, he traded on 1-min chart. from a number of charts, it is obvious he trades on breakouts. the next question, why he entered on those breakouts? from a large number of his trades, I found the common scenario associated with those breakouts. Thus, from there, I designed my own strategy. I did not see I knew 100% of his strategy, but I believe I knew enough.
If it's not 100% the same as the original, then in, for example 2 years from now, the results you get and the results from the original will be completely different. Perhaps your results will be better, but that hardly seems like the kind of outcome that you would call "reverse engineering". The whole idea seems completely undermined by "omitted variable bias", although, to be fair, OVB is more of a term in regression analysis, but seems applicable even here. http://en.wikipedia.org/wiki/Omitted-variable_bias
Good points. But how exactly does one align IT compensation with performance, to ensure retention? Imagine a strategy that does 100%, a year. And the few programmers who run it make 250K a year. Whatever bonus the firm could offer would be arithmetic, juxtaposed to (theoretically) a geometric rate of return. In layspeak, its always more profitable for the IT guy to steal, "lose", transfer or sell the strategy. But like the other dude mentioned - nothing ventured, nothing gained. Sometimes its better to risk diversion and theft, to kill it for a few years... This part bugs the heck outta me. On the bright side, a few technical strategies are well-known, and the market doesn't change. Even if the classical edges are passed around like a mexican whore, it's not the end of the world...
Can you describe here in plain english one of these well-know technical strategies, with a "classic" edge?
Then I suggest you edit the post that triggered my question & remove the 2 last lines. I will then remove my later posts.