Strategic vision

Discussion in 'Strategy Development' started by Indrionas, Jun 11, 2008.

  1. Has anyone successfully implemented this? What does it really mean to trade "100% strategic and 0% tactical"?

    After spending hundreds or even thousands of hours developing edge-based models I finally got tired of this and started pondering what the hell is strategic trading and where is the actual difference from tactical trading? Strategic vision is supposedly finding out what happens in the market, i.e. what type of behaviors exist, and creating simple trading strategies to exploit each of them. Now if you take any simple strategy, targeted at some common behavior, it most likely won't have any edge (won't beat 70% of random entries consistently) and to make it edge based you add filters and patterns and similar stuff to weed out trades where targeted behavior does not "happen". What happens is you end up with edge based trading model which is very "tactical", i.e. gives too much attention on when to buy and when to sell. Here is an actual Acrary's quote that's particularly interesting:

    Does this imply that those simple strategies are not edge-based? I wonder how strategic trading really looks like and guessing it is a collection of simple strategies (not necessarily edge-based) and a central model (or algorithm) that decides which strategies and how much of them should be currently traded. Acrary mentioned immune response model a few times, but no more details were disclosed, so a lot of stuff is left for free interpretation of what strategic trading really is in practice. What do you think?
  3. Also, I wish to add this:

    When targeting common behaviors and finding non-random components to exploit them the models do gain edges but lose frequency.

    For example, in the market I currently analyze at 1 day holding timeframe I found out that the most common and consistent behaviors were trending (around 30% of 1 day periods) and reversal (around 30% too). So I started with simple strategies coded to take advantage of these days. But they did not have a consistent edge (not all years beat 70% of random entries). Got myself into long and difficult process of mining edges. Ended up with trading models that consistently beat 80-90% of random year after year. The problem is that trade frequency became ridiculously low, in the range of 2-4 day trades per month on average. Which I bet is an example of what Acrary described as finding inefficiencies, measuring them, and exploiting with tight edges. Which is an opposite of strategic vision.

    Also, lower trading frequency means lower Sharpe ratio. And that certainly does not contribute to consistency.
  4. this is your thread and I do not wish to disturb it.

    Acrary said:


    In short what I found was a handful of simple strategies in a couple of markets were just as effective as all the years of work I did on finding market inefficiencies, measuring them, and exploiting them with tight edges. I had to give up my basic market premise and now go with “the markets are mostly inefficient and chaotic with small periods of stable predictability but with large periods of stable recurring strategic themes.”


    This is where he tasked people who wanted to consider his viewpoint.

    “the markets are mostly inefficient and chaotic with small periods of stable predictability but with large periods of stable recurring strategic themes.”

    The DON'T part was:

    “the markets are mostly inefficient and chaotic with small periods of stable predictability

    The DO part was:

    with large periods of stable recurring strategic themes.”

    The connective aspect "but" tells you the parts overlap.

    By dropping prediction in a inefficient and chaotic set of conditions and by using recurring things that you can count on in trading you wind up with an algorithm that IS a collection of strategies that you dial up as the need arises for one OR another strategy. There are many.

    This is a classic non predictive detection and filtering system that is at work all of the time. ("large periods of stable.....")

    The fact that you have encountered his admonition and stated the kernel of his argument is terrific. You DO have to scrap out one heck of a lot of things that are, apparently very familiar to you.

    To step over the line a little and inject a personal view, I believe Acrary was also keenly aware of the opportunities to be able to continually time and bank profit segments within the stable strategy application sequences as they rolled along one after another.
  5. Probably the best vision would be integrating both JH+AC methods/ theories. :)
  6. You don't trade and SCT does not work!

    That's why Spydertrader turns up to functions dressed like a bum and has to be escorted to the coat room to be given a decent pair of shoes

    That's why you wear a ponytail with a tuxedo like trailer trash with delusions of grandeur

    That's why you failed as an insurance salesman and have to live off your partner and out of her house

    That's why your entire track record consists of a 24% loss in a trading contest you didn't have the integrity to finish
  7. Please, this is already ridiculously overdone in countless threads. I am not interested in this. Stay on the topic or don't post. I thought someone would be interested in the subject, but seems that 99% of the people find more interest in flame wars.

    I know there are a few people that really have some know-how about the strategic trading, but they keep quiet.
  8. if you think of price action, what exactly it is, its the interaction of the weakest and strongest players in the market place.

    the actual price variance really has no significance. Our minds try to justify the outside world and its happenings to rationalize price movement.

    If price action is dictated by the behaviors of the weakest and strongest players, then that assertion has implications.

    The weakest players lack permanence, as the strongest players will be the same, and the practices employed by the strongest players will be passed onto successive generations, traders employed by those firms.

    So then think of the characteristics of the strongest and weakest players.

    weakest players:

    1) overleveraged
    2) stopped out at highs and lows
    3) average in loosers
    4) trade in the middle of support and resistance
    5) counterparty of volume spikes

    strongest players:

    1) underleveraged
    2) create price movements that initiate the stopping out of the weakest players.
    3) scale in winners
    4) trade only at support and resistance
    5) volume spikes of entry or exits

    If the weakest players are constantly blowing out, what fraction of market participants can be considered the weakest players at any given time.

    There are some hurdles in stepping into certain markets. But others very minimal, most retail investors step into the marketplace by venue of pension and retirement plans managed by supposed experts.
  9. cont'd

    these pension/retirement fund flows create, pyramidal dynamics in equity prices. Creating an upwardly biased markets.

    Most funds segregate funds between equity/credit with certain ratios. So either you have a bond pyramid or a equity pyramid. Given the state of the markets, a bond pyramid will be built up since fund managers will shun equity placements.

    With the advent of new derivatives such as short ETF's...ultra short... things of that nature, for the first time historically, fund managers can make placements betting against the market instead of piling into bonds.

    back to trading dynamics:

    trendlines/moving averages, by the very nature of price movements, as price moves back onto itself over time, create signals that indicate intent. Price can't move back onto itself without breaking these lines..

    samething with support and resistance, by the mere fact of price variance, these levels will break. The degree of slippage is a factor of market volatility and dynamics of the weakest and strongest players. The strongest players will seek to break multiple support /resistance levels unidirectionally creating a cascade.

    The weakest players are most likely averaging in loosers during this cascade. Since the mind can't fathom such wide swings.
  10. so strategic trading is wait for signs of emotion......

    and tactical trading is just use price levels, support and resistance, and trade arbitrarily off of those.

    with if then conditionals...

    strategic trading is looking at external events in the market place, and implement decisions based on those events,...

    tactical is looking at the price and extrapolate out to discern external events. The actual interpretation has no significance, since its all algorithmic..
    #10     Jun 17, 2008