If someone found the grail....

[Mr. Charts]

Heisenburg rules
Richard

 

[trendie]

Heisenburg rules
Richard

maybe even butterflies and hurricanes...

if you knew the most important turns in the markets that would make you the most amount of money, eg, trade-1, trade-2, trade-3, etc and travelled back in time.

if you placed a trade that got you money on trade-1, you would have altered the volume a little.

if you then traded trade-2 with higher amounts, the action itself might move the market slightly differently than the time-travelled value, and affect loads of other traders trades.

the affects on other traders profits/losses would affect their behaviour on future trades.

if you keep trading with larger volumes, you would alter the results on trades-3 and 4 onwards.
you would create an alternative reality where you became a billionaire, married a bimbo model, and lose it all in a divorce settlement.

with your remaining money, you would build a second time-machine...

 

[Lee Shepherd]

Hotch,

Watch The butterfly effect. Or back to the future, all great films.

 

[kamon]

this thread is so fun

 

[noshoulders]

the grail exists.
its called being a broker.
commissions collected on every trade, every day, whether the client wins or loses.

every mouse-click for a buy, you collect comms.
every mouse-click for a sell, you collect comms.

hehehe, although i'd have to argue that the Exchanges are the ones in possession of the holy-grail!

 

[segaa]

Hey Hotch,
kamon got it almost right: first, MM's almost instantly change their strategies to catch you, second, SEC will be interested in your system too (just check this link on trades of some Croatian grandma: Court Halts Export of $2 Million From Trade of Reebok Options)

 

[plandtrader]

I think there are probably a few "grails" out there but they are jealously guarded from the hordes. The vast majority of the so called systems that reach the market are written by people who are looking for quick buck from their sales. I wonder how many of them actually use their own systems.

We now have numerous over hyped systems and EAs on the market that employ professional actors to give video testimonials. Says it all doesn't it!

Did I mention I was a cynic?

 

[rnicoll]

I think there are probably a few "grails" out there but they are jealously guarded from the hordes. The vast majority of the so called systems that reach the market are written by people who are looking for quick buck from their sales. I wonder how many of them actually use their own systems.

We now have numerous over hyped systems and EAs on the market that employ professional actors to give video testimonials. Says it all doesn't it!

Did I mention I was a cynic?

Grail: Basically the market is a reactive system, a true grail essentially amounts to AI. However, there are probably some fairly heavy duty systems out there that will last a good few years, at least.

I think most system writers find something that seems to work on paper, then try selling it. That's not hard, there's a lot of things to trade, and a decent chance that whatever you try, it'll fit one of them (a random trader to demonstrate this point is on my to-do list). I've got stuff that seems to work fairly well over 40-ish different tradable things, and I'm still finding it tricky to make it work in reality.

 

[Vrothdar]

I've got stuff that seems to work fairly well over 40-ish different tradable things, and I'm still finding it tricky to make it work in reality.

Is that because you're trying to automate them or for other reasons? How long are you giving it before you decide they're not working in reality?

 

[rnicoll]

Is that because you're trying to automate them or for other reasons? How long are you giving it before you decide they're not working in reality?

Errr... Vrothdar, this is the system I was ranting about on Friday, over in the Forex thread...

For everyone else; automation is a pain.

 

[Vrothdar]

So it's mostly an automation issue then rather than your system not being an effective one?

 

[rnicoll]

So it's mostly an automation issue then rather than your system not being an effective one?

Looking like it. I think there's still a lot of work to be done to make it work as well as it could, too; forward testing turns out to be frustratingly different to back testing. Still, it's making a decent profit so far today, which is a promising start, especially with the spreads it's having to deal with.

 

[mr_cassandra]

Why that can never happen

would you think it morally right of them to release it?
By "release it". I mean let it run rampant, as opposed to giving it limits, quitting while you're ahead etc.
If you let it off to it's own devices, surely it would have it's own effect on the stock market after a while (assuming it still works perfectly after it's effect).
I mean, eventually, as there is very little utility gained in trading, surely everyone would quit as you'd be the only one making money (pareto efficiency).
I know the official trader response is "screw em", but I think a lot more then traders are going to be effected. The whole world for example.
Maybe I'm going OTT though. Hotch
xxx

I wrote the text below years ago on this subject and report it from time to time.

I read somewhere recently that any particular strategy will be skewed if it becomes popular enough and enough people start using it.
That is indeed a widespread belief or concept. It is one of many that are often repeated by the financial media, another one is 'you can't time the market'.

I think it does not take into account the huge effect human nature plays in its application. I've been developing a computer program that governs my trading since late 2000 and in discussions with other developers and users since then I have experienced many scenarios of human nature that would prevent any system or method from becoming so widespread that it would invalidate itself. Below is a list of factors of human nature that would be involved.

1. The myth that any system or method can catch every point of every move every time. If any system or method had even one loss or drawdown, this would cause X percent of followers to drop off in search of a better one. If this happened on their first trade X would become a larger percent. If there were two losers in a row, I?ve seen enough posts over the years to know there would be a large exodus.
2. Along the same theme, if the system buys or sells and misses any possible further gain, another X percent would become discouraged.
3. Along the way, you will also get people who 2nd guess the system, and thereby miss trades and get discouraged. This also involves media coverage making them discouraged or too optimistic versus what the program is telling them.
4. The 2nd guessing can also take the form of pure disagreement with the system, for instance if it said to buy at a major market low when things looked especially gloomy or vice versa during euphoria periods.
5. How much work will it take also eliminates anther X percent of possible system users. To illustrate this, here?s an example. Early versions of my program took me 5 minutes per day to update. I had several people ask me if there was any way to automate that so they wouldn?t have to spend 5 minutes per day. Think about it.
6. You would also loss another X percent of investors due to 'the grass is greener on the other side' syndrome, wherein they would drop off to chase a different system that looked better.
7. another X percent of people out there are religiously convinced it can't be done at all; to the extent they will steadfastly refuse to even look at trade receipts. Over the years I've seen about 75% of the people who respond just quote some sound bite they once heard saying 'you can't time the market' or must be curve-fit etc etc. When you press them for details, many times it turns out they have done little or no work on their own, just read an article once by a broker who said so. If I talk to 50 people, I get perhaps 5 like him that actually will do the diligence.
8. others feel that dollar cost averaging is the only way to go.
9. Others are all hung up on management fees to the extent that they will ignore a 20% fund with 2% fees in favor of a 14% fund with 1% fees, because a sound bite told them fees are everything.
10. others will get all hung up with macro bear or bull projections and miss all the intermediate moves a system could produce for them, sometimes ending up on the wrong side of an entire run.
11. It takes money to make money, so if it takes $5,000 to trade a given system, how many potential users did you just eliminate?
12. How many people will make some excuse to withdraw their money because they want a new sofa? (or fill in the blank)

I've seen variants of this idea saying that if any one indicator was all that useful, everyone would follow it and it would become useless. In particular I've seen this said about the vix. Yet, it is as useful to my program today as it has been at any other time since the first back-tested trade in 1996.

In part, I think that is because it measures fear levels translated into option premiums and as such is a guage of the crowd. As a mass effect, the crowd is highly consistent, decade over decade.

I've been at this since late 2000 to correct my own gross inability to be a trader by using my career abilities as a programmer and fascination with contrarian indicators into a program which removed 'me' from the picture.

In short, unless it delivers 10% per month to their account in a bank with zero risk, I say no system or indicator will ever become that widespread because people are people.

 

[rnicoll]

1. The myth that any system or method can catch every point of every move every time. If any system or method had even one loss or drawdown, this would cause X percent of followers to drop off in search of a better one. If this happened on their first trade X would become a larger percent. If there were two losers in a row, I?ve seen enough posts over the years to know there would be a large exodus.

I've developed my own system, and I spent the first 40 minutes of the most recent test run panicking it wasn't working because the first trade lost 17 pips. Never mind that it made 165-ish pips by the end of the run, I was convinced it was broken and I wrote it!

2. Along the same theme, if the system buys or sells and misses any possible further gain, another X percent would become discouraged.

Friends watching my auto-trader work have pointed out it misses a good few pips of profits sometimes. Thing is, I've done the testing; if I change it to grab every pip it can on those trades, sometimes it will hang on too long and end up on the wrong side.

3. Along the way, you will also get people who 2nd guess the system, and thereby miss trades and get discouraged. This also involves media coverage making them discouraged or too optimistic versus what the program is telling them.

I still haven't figured out what the hell I was thinking when I added "Enter Long" and "Enter Short" buttons to my auto-trader :-D

7. another X percent of people out there are religiously convinced it can't be done at all; to the extent they will steadfastly refuse to even look at trade receipts. Over the years I've seen about 75% of the people who respond just quote some sound bite they once heard saying 'you can't time the market' or must be curve-fit etc etc. When you press them for details, many times it turns out they have done little or no work on their own, just read an article once by a broker who said so. If I talk to 50 people, I get perhaps 5 like him that actually will do the diligence.

Yeah... somehow I can't imagine brokers going "Oh, yes, of course you can algorithmically trade the market and replace your traders)

The other problem is that there's so much junk out there, and I don't think most of it is even trying to trick people, it's just really tricky to actually tell if you've got a working system or a random anomaly.

I've seen variants of this idea saying that if any one indicator was all that useful, everyone would follow it and it would become useless. In particular I've seen this said about the vix. Yet, it is as useful to my program today as it has been at any other time since the first back-tested trade in 1996.

What's become rapidly apparent as I'm doing testing is just how many ways you can look at an indicator. Take the MACD; you've got 3 inter-dependent parameters. You can run it on open, high, low or close of midpoint over a bar, or you could run two independent MACDs on bid/ask. It's based on EMA, which can be subtely different depending on when your first datapoint is. That's before we even start to consider how you read the MACD, and any other indicators you use at ther same time.

Still, my general feeling is that if you start making enough money, the market will start to react to you. On the other hand, I'm dealing in currencies, so I'd need to be making insane amounts to even be noticed.

I've been at this since late 2000 to correct my own gross inability to be a trader by using my career abilities as a programmer and fascination with contrarian indicators into a program which removed 'me' from the picture.

You sound just like me. I did trade by hand for a while, but have come to realise my profitability while doing that was low enough to have possibly be just a random anomaly, and it hasn't gone well since April. My auto-trader, on the other hand, is polishing up fantastically...

 

[stocktrader77]

I don't think there is such thing as the ''grail''. no system or person can know for sure what exactly is going to happen, the grail comes from within, there are many valid methods, its executing them consistenly over time that generates winners. look at buffet, most value investors know his methods, can practice them, however buffet has pulled it off day in day out, year in year out for 50+ years now, all documented, thats the grail.