SIUYA

LOL - I did study econometirics at Uni as a requirement. Passed with a high mark as well, but hated them - it was at the same time when I had just started working on the floor, and so i would turn up to my finance lectures and they would tell me about these things in theory, and I would say "but in reality....." - one guy (thankfully) stopped me and said - do you want to pass the exam or not - I shut up, learnt it, passed it and then that was it......funny enough you then spend the rest of your life dealing with reality. Thats largely why a lot of these are just thoughts rather than tried and tested truisms that work until they dont - plus i am conservative enough to never really push things myself too much. I would say that most used a discretionary formula that suited their risk profile, and adjusted it for what they percieved as liquidity and the prices at the time. Generally they were fairly consistent. ie; the bigger traders were always big, the smaller ones stayed small. This was also reliant on the types of stocks, and as most were trading options the option position.; eg; you could do a trade that cost $20k but might have made you $180k and the choice was to hedge or let it run. Market making was different to trading, and many traders were still just punters. I would say the closest thing people got to a consistent formula was nothing like what a day trader used (% of equity etc per trade) - most either relied on their risk managers reigning them in (some people would bet the house every time if they could) , things like VAR, scenario risk limits, others (myself included) would determine roughly how big to let a book get based on how much risk you wanted in the greeks. We were also constrained by risk managers (our firm was very conservative and strict). Leverage was also another factor - you could run a big book with little costs and risk IF you balanced and hedged things carefully. I guess we constrained ourselves for what we thought was the optimal size of the book that could be profitably controlled (without loosing you job, or too much sleep) over the long run. Now when it came to running a position or having a naked outright position it might have been a different matter. Sometimes a position could be run that has very large if you had run it from a small cost. A lot may not have been too applicable here to day trading but the concept was the same......eg; if i could buy cheap options that i thought might make a lot of money i would do it all the time....most of the time it did not work out, but when it did - what fun. (I have made a lot of money out of options that where theoretically worth nothing, that then get sold for $1, $2,$3 - it was a handy thing it understand the power of letting a position compound itself when its going your way) Most day traders prefer to chip away, and there is nothing wrong with that, and the formulas work, but are maybe not as applicable here as this was options trading - concepts are the same, maths a bit different. What was probably most interesting was the betting that was done for almost everything else - sports, backgammon, eating competitions. One guy i know became a profesional gambler - he was very strict when it came to that, but rather loose when it came to trading...go figure.

here is an idea - back test for say 1000 trades - get the optimal level - then backtest the last 400 trades - if the 1000 trade optimal level is say 50 MA, and the 400 trades is 60MA, then maybe the optimal level if you beleive in mean reversion will be to tend toward 59, then 58, then 57.....ie; always take two levels and use one slightly leaning toward the longer term avg. I think that changing the risk management (qty) and stop or TP levels rather than just the MA might have more effect - eg; if 50MA is the longer term norm, and you are currently at 60, then it implies that the market either trends longer or is less volatile - so maybe changing the qty around based on deviations from some longer term MA might have more effect???? what about something like - when the MA blows out to 60, I will change the exit levels so they are different to when the market is what might be considered normal? This kind of flies in the face of mean reversion I would have thought.....and so if it did not fit with the general theory of how the market works, then you get caught in the trap of continually pushing something down until it rubberbands you.....maybe this is where some general stats can be useful - ie; normally it here, now we are lower than here, so odds are it will rebound, BUT in the meantime, the trend is your friend - run a tighter stop, or different TP levels. Again, I think a lot goes back to the trade management, and the specific part of the market you are trying to capture. If you are a day trader that goes both long and short intraday - then does it matter too much what the last months trend was - or are you only interested in the last couple of days for bias. I mean if you are really short term trading, does having 100 years of data help you? It all a bit beyond me (the constant stats, models, testing - I understand enough to know that relying on them like they are the be all and end all is a fallacy - that is not to say you cant use them to make money) and I think chasing what is effectively a constantly changing type of market means that maybe the simplest thing is to have multiple systems that you either just rely on diversification to iron itself out, or discretion to avoid extremes....there is only one thing I know - if you buy it and it goes down in price, you loose money.....no matter what the model says.

I didn't mean that everyones boat will sink (efficient markets theories might suggest so) - you can have boats that go on and on and on so long as they are maintained , the point being --- to just plow full steam ahead might lead to you not recognising the dangers or thinking you have discovered the unsinkable truth - to always be keeping a watchful eye on things would be the prudent alternative (I have always been far to conservative) Re when to re-optimise - with the advent of computers why not do it all the time - I would think that not much would change very much unless the market drastically changes. I guess this might also depend on if the systems are mean reverting or trend following/momentum based. I kind of thought the machine learning ones basically do this anyway. As mentioned these where more my random thoughts and I would re-optimise either pretty much continually if it was not a massive computer drain, or set a period to do it - ie;once a week, once a month, when volatility changed by a certain amount, or when there was some other trigger - eg; a move through a longer term MA maybe. Was optimisation an issue or concern before computers, or is it just because we now have the tool we now have the problem? Did we just accept that a randomly generated MA did the trick before hand? Or did we kind of naturally optimise by using the eye?

Blue - stumbled across this - it might be interesting though I could not really be bothered to read it as it a one sided defence of HFT, but I figured you and others might find it interesting. http://www.directedge.com/Portals/0/docs/Direct%20Edge%20Flash%20Trading%20Ban%20Comment%20Compressed%2011%2020%202009.pdf

diversify???........ Personally ( and these are thoughts and feelings rather than anything else......) The problem with any model for how the market works is that it will always hit difficulties in certain types of markets. ie; no one thing works all the time, there is no truth to the markets, models are just idealised....and anytime people think the model represents the truth - Mr market might remind you otherwise. so why not optimise and then keep optimising as the market changes - could you run a test that optimises within a range daily and adjust - what difference would that make? My guess is that if the general theory of how the market works is correct, then all you are doing is optmising entries and exits for that market at that time (a 20 period MA as opposed to 25MA will sometimes make a difference, othertimes not) - you wont change how the market works....it will do that on its own as it always adapts.....so why not adapt with it. (the key is getting on and off at good times for the market state at that time) Also as different instruments and different markets have different participants and underlying drivers, liquidity and order flows, why would we expect one model to be robust for all of them - one theory of market behaviour maybe - but not one model and ideal set of parameters.....as markets dont have the set rules of a casino, and they dont follow set distributions then why should we think they will? Even risk managers fall into the same trap - VAR analysis - what a joke - always has been for years, and yet it was embraced by risk managers as the model for the markets. You have to think of the market as a leaky boat, and you have to keep working out where the 'holes' are and which will sink you, which are not an issue, and which can become bigger holes - even the unsinkable Titanic hit its iceberg. So why not optimise and continually try and steer clear of the icebergs?

perfect children dont play with others - they subjugate them..... oh wait - they will be too intelligent for that!

Are you looking for data on limit up and limit down days???? (I don know where you might get that history - but that is effectively a halt in trading unless it reverses from the limit level)

ForexTraderX I think your assumptions are correct in many ways - a small account, plenty of liquidity, fixed margins, a stable market. These are great assumptions that often get thrown out the window in the real world.......and the finance world is scattered with people who forgot these and decided they could amp their returns with extra leverage. Your logic falls down on the one time it does not work.......eg; you have taken you 10,000 to 10mil - either with a very high win rate or lots of leverage......liquidity becomes an issue. ....and then unless you can only think in % and dont get flustered when a big drawdown occurs when you hit 10m and give back 20%.....etc...... I would think the only logic flaw you have is that there is a model v reality and when reality takes over thats all that counts.....eg; you wake up one morning, the brokerage firm you had your account goes belly up, the tax man is asking for his return on last years PL, you get a divorce and you get a margin call......:doh: As I said (not to argue with you) - with enough assumptions there is no logic in the thoughts, but if you choose to ignore (and not saying you dont recognise them) the risks that extra leverage can give you then I think you are being the little old granny in the Ferrari - not using the horsepower, that gets cleaned up by the speeding kid in the 130 hp s...tbox.

competition has also been one of the driving forces in the history of human and other species. I think you are vastly underestimating the regulation of competition that the modern world has thrust upon us. You ask - "How can we as a society promote meritocracy and collaboration without fostering destructive levels of competitiveness?" the answer is we have tried to regulate it - patents, taxes, mining rights, property rights, inheritance taxes....... I think it could be argued that society is becoming less competitive and more divided for other reasons. Eron was corruption and greed not competition, scientists have always been competing for patrons, and are you sure their sources of funding are getting smaller or more concentrated - are there more or less university etc than say 100 yrs ago?, organisations implement systems internally in order to work together....some encourage competitions at work - keeping alive the spirit of innovation and often many organisations are run more on political leanings than internal competition...they will always try new ways of incentive's and motivating people.

Food.... 1....if that was an opening trade, then no one has made any money yet!!!! unless the market makers were able to reduce their previous book risk via these trades Plus 28mil of premium for that risk (1.2bill is only the hedge amount not the exposure) - not a huge amount, but not bad returns. (I dont trade the SP, what is the exposure for each contract? This will give a better insight into the risk v return) 2.... They have done two ratios (assuming I have copied this right) Dec...+17.5k 1350 calls, -60k 1450 calls (or alternatively they are long the 1350-1450 call spread 17.5k, and naked short 42.5 1450 calls) Mar -8.4k 1400 calls, +25 Mar 1500 calls (or alternatively they are short the 1400-1500 call spread 8.5k, and long 16.6k mar 1500 calls) A little table to help show things. Strike........DEC................MAR....... 1350.........+17.5............................ 1400...............................-8.5........ 1450...........-60............................... 1500................................+25.......... So ideally they want the market to stay around 1400-1450 - until DEC expires, and then they want the market to run really really hard through 1500.Other alternatives will get them some positive outcomes also ..... Re delta hedging - you need to know the deltas of the individuals, add them up and work out the total required to hedge it. One might assume given the market move you mentioned that it was not a delta hedged trade, and that one side of the trade (likely the market maker group ) had to do the hedging (again - i dont trade the ES and dont look at it, so largely speculation)

I exit most things when traveling - except on short trips....I have tried in the past to travel and trade and realize I would rather enjoy the travels without having to think about the trading.

The odds dont change by your own estimates - we just end up having a few extra geniuses to deal with the 100mil extra problems - they might say the genius solution is to eliminate a lot of the problems - humans have been down this path before - usually when we feel we have outgrown our resources. why not just stick with 1 genius and 100mill people.....and do we need all the great ideas that geniuses have given us??? or are they a matter of the problems the many have caused that geniuses then need to solve??? well i think first you need to define the problem - you say its our intelligence, but then you say it more practical things......where is it you wish to get to. A Vulcan like planet? or maybe the most intelligent one is whereby we let mother nature take it course..... (Plus if you have ever dealt with a woman who has selective memory - do you want them to remember more......:doh:) Also note water is a finite resource as well.....the problem with water is that it has to be usable, and in the right place at the right time - storage and transport are two major issues - Currently the world has plenty..... Predictor - you were always opening the box on this one..... and the crazies will start to come out.

Blue ---- Goggle the Russian pyramid scheme MMM - people will invest even when told its a fraud and a scam and are told as much right from the start. I am sure you would find people who trade off a paper from the future! Never underestimate the stupidity of even normally rational people especially when it comes to money and economics - behavioural finance too often shows that....and those little things we refer to as 'bubbles'..... or even those newsletters that claim to provide you 'the secret that others dont want you to find out about' - I think I would prefer the newspaper from the future...

no it was just printed on his t-shirt (white with orange writing) - I didn't see any logo but I kind of figured it was a quant guy taking the piss

just saw a guy in the street with a t-shirt written on it ...... "optimise for success.....curve fit for comfort"

what you mean letting profits run and not interfering with them might work One of the often quoted truths that people ignore..... 100% agree with you bakrob99 - plus I tend to think its an urban myth (prepare for flame) that holding things overnight is risky - when you consider the offsetting reward it is often not the case - whereas if you are overleveraged and are unable to accept that risk then its a different matter. From a simple pov if every day you come in an put on the same trade, then unless the exit/ re entry are significantly better each time then you might have been better off letting it run. Mostly this will depend on you - your history of picking levels, and the strategy you are applying (short term scalpers might not care about such levels - long term players might be more interested in buying more at your TP levels etc;) I think a lot goes back to the feeling of either wanting control, or the feeling of being right. That is - people would rather get the feeling of I get in and out and make money - than - I got in once and made more money but really had no control and did nothing after entering. Its the decision process as you correctly state that gives the feeling of control - maybe why there is a focus on % profitable trades....makes you feel good, but may or may not make your account feel good. so even if you had a newspaper revealing the future - most would still stuff it up by trying to prove themselves right.....best use an option that you cant touch after the initial entry. (It is an impulsive habit I had (have sometimes ) that I am aware of - brokers love you for it)

I think all you could say is that it is not a guarantee - but I for one would certainly think that being able to see into the future even if the information is limited would still be a help.Even if you adopted a strategy of.... Everytime there is a breakout away from the number you took profits quickly, everytime there is a break toward the number you let it ran. Take all profits using a really tight trail when an exisitng long is above the price level...v v for shorts. A simple strategy like that might be enough to swing the difference......and all you are doing is taking profits quickly. Again - leverage is key as gaps can occur....it all depends on your assessment of the probability doesn't it.....plus a healthy love of risk. If it came off you would say I should have been bigger, if it did not you say lucky i did not go all in.

Re the money management thats why a binary option - or as I tried to suggest a straight bet for where it closed is the best way - let someone else worry about the money management... It would be interesting to see the odds given for such a thing v the options play and the margin required.....there is also the scalablity v the ability to pay (you for risk of broken legs) and the bookie if you are right. Trying past scenarios would only work if you could try every past scenario, and then still you would only be able to say with a degree of certainty this is expected....much the same as any backtest..... and hence your point - you can only play it how you see it and if your experience tells you that its a trend day (or the time traveller helps you out) you still need to play the game.....the rest is just a punt. It would make for an interesting social experiment to able to leave a newspaper on a train with such a thing - you would need a large sample size and then how would you track it. You know some people would go all in, and some would get it right.......there is no accounting for luck!

I must be missing something....where did 1460 come into it? I read it differently - I thought that you know two pieces of information about the future..... "How would you trade it if you knew what the ES would be at September 25th 2012." and "Let's say a recent time traveller accidentally left the business section from his newspaper dated Thursday September 20, 2012. There was no other references to the prior week's or days." In other words today being August - you had two prices of info....hence you could either risk the load up - and getting margined out, and going broke in the meantime.....or do an option based on the close on those days (you actually get two bites at the cherry) Even slowly increasing a small account to a larger one does not guarantee you will not get taken out (small chance of course). eg; Sep 24 Black Monday - market is smashed - broker closes you out, and issues an order for you to pay any difference. you have no more money to open an accont else where, the market rallies back Sep 25th (this happened Oct 1997) I like the idea of the thread as it involves scenarios, but even with the best money management, a long history of probable scenarios for the market moves, and fantastic risk management, nothing is guaranteed. You might have had the account with MFG of PFG or similar and they go broke on that day.....bye bye money even if you had won.

I agree they are faster but I think comparing EMH with the day trading whereby you are square every night, may only be applied to one instrument and there is no requirement to have to trade is fair. One of the issue people have is measuring a individual trader v someone who has to run a portfolio - a lot of these guys are not allowed to deviate to allow out performance, or their business model actively discourages them to do so. Alternatively when I think about it - its basically exactly what it is - can a person beat the market (even if its one market) consistently or over the long run - even if they only do one trade a year, or 1000s...... I do take the Taleb approach that the markets are at best poorly measured.....and mostly by a model that is at best a representation of how we might see an ideal market. Problem is the markets constantly throw in things like flash crashes, liquidity issues and such. I dont think markets are efficient in their pricing - and for me the simplest evidence is that they generally do trend between price levels allowing you to trade, whilst at other times they do gap when no real fundamental information changes (a trigger point may have occurred). Would you think that as fundamentals change, the prices would gap more, and yet the large gaps should occur less......now as to weather people can outperform them might be another story....there will always be some. Its in one of those great never ending debates I guess - no matter what research or ideas you subscribe to there will be varying schools of thought, and it will depend on how long your time frame for outperformance is......as they say in the long run we all tend towards zero (or something of the sorts) Anyways - as its theoretical allows for all sorts of assumptions, ideas and thoughts.

i agree with a lot of the above posts...but also wonder how relevant efficient markets and random walks research are to discretionary (day) trading, where the ability to not do and take every trade or every time a pattern occurs is the edge......It maybe an unfair comparison.

the advert that appeared on this page ... fxoro Quick and easy way to trade big.....:doh: 40draws.....if you are wanting to just be patient, wait for the right trade setup and stick to that, then yes it can be done. It might not necessarily be scalable, it might be tough work sitting there waiting, waiting waiting, and you might not need a lot of money as margin to do it. It can all be done. Your aim is consistency. The problem may be - can you do it. Can you sit and wait, can you focus for that setup and do nothing in the meantime, can you stand it when you lose money etc. This is the hardest part IMHO and just one reason people are skeptical - good luck

Damm time travelers only ever leave the business section - I want the horse racing section to know which bets to parlay. It is an interesting thought experiment - if you are a day trader then really you only get one day to trade - thats the day you know of the close. If you believe in the butterfly effect (I think this is the right reference) then by acting on that info - do you then change the future? There is also the possibility of experiencing a crash (if you go long) between now and the day that takes you out. All things considered - an option or bet taken on where the index closes on that day would be what I would use. (give a small range so as not to arouse suspicion) and see what odds you get on that - might be better leverage that a future or normal option.

dont whipsaw yourself....they are not necessarily limits either - this is a case of they may be a market order or a limit order - if the exchange classifies them as such then that may be so. Point is - what are you trying to get out of it....if you want to know and count everytime someone hits the bid or the offer then it maybe irrelevant how that person entered the order....plus when people really get aggressive or passive may have little to do with hitting bids and offers and more about volume. You are counting the times people cross the spread....That was all I thought (???) Here is another thought experiment .... market is 55-60. Someone ticks up and down to close the spread..... 56-59, then 57-58....what changed?.....or 55-60.....then 55-59, 55-58, 55-57, 55-56, then someone buys at 56 and takes it bid 56-57 What was registered the down ticks of the quotes, or the first trade as someone being aggressive and buying at the offer?

They maybe classed by the exchange as limit or market only but I what I mean is that just because you crossed the spread does not mean you have decided to have a market order. eg; Lets say the market is 55-56, 10 volume quoted each side, and there is also 10 bid for at 54, 10 at 53. I sell 200 at a limit order of 53. I will cross the spread and hit the market for 10 at 55, 10, 54, 10 at 53....I will then be in the first in the que for 170 on offer at 53. So in your counting - are the first 30 market orders, then the next 170 limit orders if they get hit? How does the exchange see it? From the person who hit the button they were aggressive and crossed the spread for the first 30 with a market order, and passive and used a limit order for the rest...... If that makes sense......mind you it might not make any difference if you are only counting those that cross the spread and hit the bid or the offer, regardless of passive or aggressive and what type of order they used. (I saw some great uses of manual order placements in a previous life and watching the brains tick away about what was happening - one example a massive sell order sat at a level and was hit and hit and hot. Finally it seemed complete the stock ticked up about 1% - the order came back at the original level about half an hour later taking out all the bids down to that level- this occurred 2-3 times over about 6 days. They sold pretty much near the top for that recent move.....and the volume was huge) Re Paul - I just read his feedback as dont make it more complex than it needs to be...he can answer that. Often a well researched thought out complex plan will be just as good as a guess if there are too many fudges in there not revealing enough data to be accurate.