sharing your system

[Don4 10]

I have seen this posted on other forums but i wanted to get your opinion.

Does sharing your system hurt it ?

[Don4 10]

Sorry,could someone move this to general discussion.

[dalby 10]

to some extent... yes. an edge that is widely exploited ceases to exist. the market is the sum total of all trader decisions.

 

it's a much quicker adjustment to arbitrage opp's than more general setups.

 

remember the SOES bandits?

 

But in general, an edge exploited and widely disseminated faces dilution or extinction.

[MrPaul 10]

I have seen this posted on other forums but i wanted to get your opinion.

Does sharing your system hurt it ?

 

I do not believe that (IN MOST CASES) dissemination of a method or system leads to dilution in the marketplace. The Grey area lies within whether the system is highly programmable, but even then a system will not be used in the same market at the same time with large enough contract/share numbers by enough people every single time. A discretionary method is even harder to muddle into the marketplace due to the subtleties.

 

Many people have given out their systems/methods in books/courses and there hasn't (as far as I know) been a blunting of the edge.

 

Most market participants even given strict rules that mold an edge will typically destroy it by tweaking it and/or using it incorrectly.

 

Now another thing to keep in mind is that most people who think they have a fantastic magical edge that they just can't disclose really don;t have more than something that works well and makes allot of sense for them...

 

Thats my 2 cents on the subject.

[dalby 10]

i am of the belief that all the "trend followers" in the 90's helped lead to the eventual market adaptation that has caused trend following funds, etc. to be such serious losers.

 

i could give out my setups (not that i would) to 1000 traders and it would have next to zero effect on the dow. of that, I agree

[TinGull 10]

I think, too, that with the high turnover of market participants, an edge that might have been given out will still remain an edge because those participants who might use it won't use it in the same way as you...and will get discouraged and go on to find the "next best thing" in their quest.

 

As Paul said, a discretionary edge is a very difficult one for others to "get" even if you give them exact parameters.

[walterw 10]

hey guys, we can post here our complete "succesfull" strategy, and people will trade their own wisdom.... no way your wisdom will be exactly copied to the point of making it uselless.... on the other side the market its to big to have something like that happen, so please share your strategy ¡¡¡ jejejej cheers Walter.

[Soultrader 12]

to some extent... yes. an edge that is widely exploited ceases to exist. the market is the sum total of all trader decisions.

 

it's a much quicker adjustment to arbitrage opp's than more general setups.

 

remember the SOES bandits?

 

But in general, an edge exploited and widely disseminated faces dilution or extinction.

 

Didnt the SOES bandits take advantage of a "glitch" front running market makers and selling it back to them? I dont think that would be called a system in my opinion. I dont think anyone will ever tell you a system that actually works. Why would they? 100% of the commercial systems are total bs in my opinion. Plus the systems that actually DO work require deep pockets. So I do not think they are in the hands of retail traders. I have received numerous emails ever since I started this board from system vendors. They are not selling the system to me but are trying to see if I was interested in promoting it to traders in Japan. I told every single vendor to piss off.

 

I am a discretionary trader and there is no secret to trading. There is nothing that cant be done discretionary that a system can do. My strategies will be traded differently by other traders... some may even be inspired to tweak it to fit their own style.

[dalby 10]

the SOES bandits were exploiting arbitrage opp's

 

i was distinguishing between the time it takes the market to adjust to arb opp's vs. just general setups.

 

arb opp's are much more prone to dilution and extinction than a system

 

trend following is a system that has (generally) ceased to work in stocks even over the recent bull run. The market has morphed from a "trendy" market to a "regress to the mean" market. Trend following funds have done pretty terrible over this last bull market cause they are stuck applying a 90's paradigm to a different market.

[Soultrader 12]

Theres an interesting comment made by James Dalton in Markets In Profile. He mentions alot of trend following systems lose money because they are unable to determine the relative stages of the trend. Is the trend healthy? Is the trend getting old?

 

Also he mentions that fund manangers using trend following systems follow price only. Since they do not view the actual profile of the markets, they are unable to determine if the trend is a continuation or a short covering.

[mvhanson 10]

First, there are hundreds of thousands of people and instutions combined participating in the marketplace. Everybody's running a system of one kind or another. Whether it's fibonnaci or moving averages or whatever -- if you trade, you have a system. Even if it's just picking stocks out of a hat, or pinning up the WSJ and throwing darts at it, or using astrology. Whatever.

 

Systems are like beanie babies. They're everywhere. Right now, if you sit back and think about it, you're probably using multiple systems and methodologies when you approach the market. Some are the fruit of study, and some the fruit of experience.

 

So if you are a trader with an average amount of capital, say $100k or so, your trades, even if you trade actively, are more or less irrelevant. Like a gnat smacked by the windshield of a car going 70 mph in the opposite direction. The force applied on the vehicle is there, but more or less unnoticeable to anyone but the physicists.

 

To give you a point of reference, when big institutions trade the S&P large contract, they sometimes put in orders for 125, 250 or more contracts at a time. Current value, that's 364,937.5 (per contract) *250 or $91,234,375 in a single trade. There's also a counterparty to that transaction.

 

So lets say you have a good system. Fine. You get your friends to use it. Great.

 

Let's also say you're all fairly well off, and you have ten friends and you're each trading $250,000 apiece. That's 2.5M.

 

To get up into the area where the action is, you need 364 really rich friends getting together to act as counterparty to just one institutional transaction.

 

To take it a step further, let's say you run a service and have a thousand subscribers. Let's say each of them (on average) has about $50k. That's $50M. Ok, so now you are the equivalent of a mid-sized fund. That's not bad, but it's not that big either.

 

Because your "fund" is only going trade in little slices, and if your system doesn't churn but trades a reasonable short-term strategy, it's only going to trade once per day, and still not be able to act as a counterparty to a single one of these large institutional trades.

 

Now take that $91M single institutional trade and expand it to cover all of the transactions that happen every day in every index futures market.

 

Now add in grains, metals, and other commodities.

 

Now add the entire universe of domestic stocks.

 

Now add all of the underlying options series.

 

Now go global and add in all of the markets you have access to through qn Interactive Brokers account.

 

Now add currencies and other financials.

 

You see my point.

 

The sub-100M fund I used to work which used leverage to a fair extent, on active market days barely caused an up or downtick in the S&P pit.

 

There is also a credibility issue most systems come with -- because they are a system. And systems, unlike the human mind, are generally not that adaptive to change. So even if you have a really good system, it's hard to get people to believe you.

 

So even if you have a great system, you have a couple of problems -- first, it's unlikely you have enough money to make a difference.

 

Second, it's unlikely you will convince enough people to use it to make a difference, and third, it's unlikely your volume even with thousands of subscribers or users all doing the same thing will make any difference to the market at large unless they're targeting a very specific piece of it.

 

When you launch your multi-billion dollar hedge fund, then you might cause a stir, the way a large tanker stirs up a sea full of plankton as it cruises for port -- and even that kind of movement rarely leaves a long-lasting impression. There's just too many participants doing too many different things.

 

So, in summary, you can publish your system or give it away, or whatever, without it having much of an effect. Personally, I'd advise that you keep what you have under wraps to a certain extent, especially if it's working. Or start a subscription service and let other people use it for a fee. Or start a hedge fund (if you can handle all of the attendant headaches).

 

I wrote a book about the ins and outs of trading system design which talks about some of these issues; if you'd like a copy let me know and I can send you a discounted copy.

 

Hope that's helpful.

 

I have seen this posted on other forums but i wanted to get your opinion.

Does sharing your system hurt it ?