Short Time Frames Losing Their Edges?

Discussion in 'Trading' started by Corso482, Feb 2, 2003.

  1. Is finding an edge harder when the time frame is shorter? Or, in other words, are there fewer edges to be found in shorter time frames? Allow me to elaborate...

    Finding an edge means finding a statistical inefficiency in the market. The trouble is that (1) the market is mostly efficient and (2) everyone and their mother is sitting around looking for the few inefficiencies left to exploit.

    So, it can be said, therefore, that once the first problem is over come and you manage to find an inefficiency, the second problem is that others may also find the same inefficiency and arbitrage it away.

    Am I right in thinking that the only reason inefficiencies exist, aside from people having not found them all, is because of smaller time frames existing within larger time frames? In other words, everything would be arbed away quickly if everyone traded the same time frame.

    If that's the case, then the longer the time frame that one trades, the less likely it is that his edge will disappear because of the multiple time frames that exist within his timeframe.

    Is this why daytrading is so hard? Not only are there fewer timeframes within your timeframe to help ward off the arbitraging of your edge, but also only full-time professional traders play the intraday timeframes, meaning the people you are trying to prevent from arbing your edge are that much more skilled at doing so.

    If one follows this thinking, then daytrading will only get harder and eventually impossible as more and more sophisticated computers all compete for the same inefficiencies over the same short time frame. After all, couldn't one look at day trading as an activity geared toward making the market efficient? Well, if that's the case, then the better traders become, the more efficient the market will become and the harder it will be for them to make a living.
  2. jaan


    FWIW, i have found that the opposite is true. basically, the more money (in absolute $$$-terms) can a strategy handle, the less likely it is to work (due to competition from "big" players). longer timeframes can accommodate bigger investments, hence finding an edge there is more difficult.

    of course, the above edges need to be compared against buy and hold, otherwise finding an edge in the "decades" timeframe is trivial -- just b&h.

    - jaan
  3. Corso,

    What time frames are you talking about?

  4. Ditch


    economic theory is completely useless in understanding market action. markets are ruled by FEAR and GREED, not "sophisticated computers" and it will be that way until the human brain doesn't longer exist as we know it
  5. i agree with DITCH. the day that a computer can rule the market, golman sachs or morgan stanley will own it and they will then own the world. the advice i try to stick to...... just stck to my 2 reliable patterns that will not let me rule the world but have proven reliable in all types of markets.
  6. rgowka1


    A sucker is born every second!
  7. corso, don't forget it's got to be worthwhile -- big $$$ -- for an institution, or hedge fund, to after the shortest time frames.

    so they're probably always be stuff do make money from in the 1000-2000 share short term timeframe range...
  8. Firstly, if everyone traded the same timeframe and signals, what do you think would happen?

    I believe we would have HUGE oscillations with a frequency of approximately 20 seconds. Those with fast connections would constantly pick off those trading from overseas or using inferior interfaces. But we will of course never see anything like this in the real world.

    Now the reason why I think daytrading is "harder" than long term trading/investing. I think "harder" in that statement is defined as "more people lose more money trying it". That's very simple: At least 90% of all market participants have absolutely no edge whatsoever. So in determining how "hard" (in general) something like daytrading is, we need only look at those 90%.

    If one of those participants does what his broker tells him to do and becomes a "long term investor", he will probably make 50 trades per year, generating $45 x 50 = $2,250 in commissions for his broker, but at the same time of course his stocks will on average increase in value by let's say 5%, so he will be more or less breakeven to up a few percent every year. No pain, no gain.

    If you do basically the same thing (buy and sell stocks with no edge) 50 times per day, you probably pay $9.95 x 50 x 250 = $124,375 per year in commissions and you lose the "interest/infaltion" edge the long term investor has due to going long only and holding positions over night.

    That's exactly why daytrading is "harder" than "investing", IMO.
  9. Uh oh, now you've done it.... hopefully not.... we'll see.
  10. dbphoenix


    I'll go with Ditch as well. An edge need not be just a "statistical inefficiency" in the market; it can also be something that enables one to take advantage of the psychological weaknesses in other traders.

    #10     Feb 2, 2003