True. Anything that is derivative of market principles, like indicators or other crap, is a losing proposition.
I was hoping to hear some horror reverse engineering stories and get a feel as to how widespread the practice is. Unfortunately the people doing it have no reason to talk about it and the ones that were taken advantage of may not even be aware it was happening. I find promagma take as the best explanation for what happened. Thank you to everyone who responded and good trading to you all.
Well, his range of causes was quite broad. From lack of participation to QE. What do you think affected you most?
Expect everyone within your broker to be able to see your trades. Expect the brighter ones among them to wonder what you're doing. Don't expect a planned or sanctioned reverse engineering effort. But do split your flow between a couple of brokers if you have sufficient size, and ideally randomize which broker gets what leg, and when. That being said, would the 2009/10/11 correlation bubble have reduced the strategy's profitability? No reversion to capture when basketed blundering is benign.
To revisit this old thread, I find that information that previously used to take hours to days to get fully priced in now gets priced in in a matter of minutes to hours. The reason for this is likely due to some changes I see in the way the information gets disseminated. I suppose it is just the inevitable move towards more efficiency that the dog eat dog trading activity has on the market. I am not done working with this strategy so I will not disclose details on it.
Any comments on splitting legs between brokers? I have toyed with this before, and also some size randomization. Either way, a semi-bright internal database guy will probably figure out roughly what a strategy does, although maybe not how to replicate it on their own imo.
Splitting legs between brokers definitely makes it difficult for someone to understand what you are doing. However, I do not have enough capital where it's worth splitting the legs. Having all positions in one place saves me money on margin financing and allows higher overall leverage, and executing everything through one broker saves money on commissions with the volume discounts. Obfuscating trading has low priority on the list of things I would like to do right now.
Agreed. On the plus side, while the number and variety of people that can see your trades on the inside can be disturbingly high seeing is not necessarily understanding.