What if we controlled a SUPER COMPUTER capable of crunching infinite instructions/sec. Calculating EACH & EVERY market variable, each & every stock. Each & every permutation accounted for in real time! Wouldn't we then find short term inefficiencies, fleeting market aberrations that could make us rich beyond our wildest imagination? Are there times when the market IS predictable? And, given enough calculating power, COULDN'T WE FIND & EXPLOIT THIS TO OUR IMMENSE FINANCIAL BENEFIT? I think this is intriguing. What do you think?
If it could be done, people would have already done it. There are entire teams of developers very well funded doing this as a full time job, but the reality is the market is dynamic and that's why you will see very few succesful system traders and even fewer (not sure if there are any) successful system day traders. Stop looking for shortcuts, there aren't any.
What if we controlled OURSELVES, capable of filtering out infinite instructions/sec. FOCUSING ONLY on our system. Being accountable for every action in real time! Wouldn't we then find discipline, and become the minority of consistent traders that achieve their wildest imaginations? =) -qwik
Hitman, with each and every trade YOU are using a system(s), ill-defined and rather simple, but, nonetheless, a strategy with simple rules that form the basis of your trading strategy. If there were not short term market inefficiencies that can foretell the future, than why do you choose to trade certain stocks at particular periods of time over other stocks and other time frames? Are you not attempting to recognize some transient order in the market, and exploit it? If so, then I ask you... Could not a computer with 100X (or 1000X) the computing power of a "Big Blue" discern these pockets of market non-randomness much more efficiently than you could ever hope to do? And would not even greater wealth result from this? I realize this is quite philosophical, but I ask you again... doesn't this go straight to the heart of what we are attempting to do as traders, ie predict the future based on the past occurrences, and profit from them?
Quicktrade, we mere humans may NOT possess enough raw computing horsepower to do the job efficiently. Rather, we may not be capable of discerning with sufficient resolution those eddies of market inefficiency that may only very infrequently form then just as quickly disappear. In short, our "eyes" may be TOO DIM, Ccapable of creating only simplest and crudest of algorithms/systems that are woefully flawed and lacking in sufficient scope. We don't have the mental horsepower to do it with potency.
TradeRx, the problem with your logic is that you assume what needs to be measured is historical time/price/volume relationships in extreme detail.. but these relationships dont carry any intrinsic value relative to future prices.. you see, history doesnt buy or sell anything.. traders do.. and in order to have a system as you described work, you would need to be able to quantify the psychology and intentions of each individual trader that may affect a market at a given time.. obviously, this is not possible.. on the other hand.. if we use general (yes, not too complicated for our woeful intellect) historical time/price/volume relationships to help us understand the general behavior of traders in respect to certain types of price action.. we are then able to develop a system that if combined with strict discipline, gives us an edge in an otherwise random marketplace.. i say build your computer.. analyze your data.. and place your trades.. this isnt a game where the educated take from those with less information.. in this game, those who look inward for discipline and composure take from those who think success lies in a newer and better system.. good trading.. -qwik
This is the type of work that is being done in some firms. In some cases, nuanced systems have resulted in adding 2%-3% to the bottom line. While it is cost prohibitive for most traders, for those institutions with millions to invest it is a small price to pay for the return. I agree with the spirit of what you are saying, though the development of functional systems is anything but a shortcut. It requires much more technical background than most styles of trading and is often incredibly time consuming. This is an awesome comment. I agree with this wholeheartedly. It seems that traders want to differentiate between "system" and "discretionary" trading. In reality, the differences are more a matter of degree. The discretionary trader uses a set of rules that takes into account his experiences in the market. Often these rules can be difficult to express in a way that a computer can use. Simply because it is difficult for some systems to mimic the nuances of human thought is no reason to dismiss system development as ineffective. To do so is not only shortsighted but patently incorrect. In certain circumstances, removing the human element is advantageous. I trade with discretion, but having some background in system development has been extremely helpful to me.
if you are interested in this sort of thing read the book called "The Predictors" it is a real life account of some *very* smart people that started a project to do exactly this. Eventually they sold the company to UBS AG. The Swiss bank has been extremely tight lipped about the whole thing. As you would expect from a Swiss banker
qwiktrade, Your argument is inconsistent. First you say "...historical time/price/volume relationships in extreme detail.. but these relationships dont carry any intrinsic value relative to future prices." Then you go on to say how this very same data "...help us understand the general behavior of traders in respect to certain types of price action.. we are then able to develop a system that if combined with strict discipline, gives us an edge in an otherwise random marketplace.." Well, which is it? Either this data does, or does not, portend the future. You can't say on one hand it's essentially useless, but on the other it is useful. Doesn't make sense. Useful or not, which is it? And if it's useful, then there IS some intrinsic value relative to future prices. You also say, "you would need to be able to quantify the psychology and intentions of each individual trader that may affect a market at a given time.. obviously, this is not possible.. " Aren't the traders intentions already quantified (discounted) in the present price action of the market in general, and the stock in particular? How do you know when to take a position now? Do you just get a subjective feel for the market thru the news media, listening to the chatter and hype, then pick ANY stock at random? Or do you rely on TA and objective data like fundamentals almost exclusively to make your choice as to what to buy and when to buy it? My opinion is you use the latter (as most do). THIS is attempted QUANTIFICATION of trader's present and past psychology/intentions to foretell the future price action. So, what better way to quantify than with a super duper number cruncher!