What are structural edges

James Simons is considered the most successful hedge fund manager of last few decades. He is highly secretive and seldom gives out specific methods. His hedge fund employs 80 Ph D most of them with Physics or Maths specialization.

Simmons was asked in one of the interactive student forums in a university as to why he hires Physics and Maths PhD with no Street experience. His reply was to make money you need to understand the structure of the market. Physics and Maths deals with structure and fundamental ways in which universe and nature is structured and the fundamental ways in which it works.

Physicist found gravity and that is structural to the universe it is the fundamental law of nature. It is based on empirical observation and evidence, it is universal, and absolute. Once you understand the role of gravity in the structure of the universe then you can do so many things. Same way we want to find out the fundamental structure and laws of the market and build our trading systems around them.

What are the fundamental laws of the market. What are the equivalent of Newtons law for the market. That is what I mean when I say find structural edge. If you find that certain anomalies are fundamental and structural property of the market then you build system around it.

That is like saying if gravitational force is the fundamental law of universe and nature then you must build your planes, satellites, houses, plumbing, or any thing based on it. If you do not do structurally the thing will not work because it defies the structural law of the nature.

Same way you have to find structural laws of the market and build edge around it. If your methods, scans, entries, exits, risk etc are based on that then they will work. If they are not , they will not work.

What you will see in the market is that most of the things discussed and sold as market beating system are not necessarily based on market structure or fundamental properties of the market. That is why they do not work, or work for some time and then stop working.

Most market participants trade on their beliefs and their beliefs are not necessarily based on market structure or markets fundamental properties. That is why if you want to build structural edge you will have to let go of some of the beliefs and replace them with right beliefs based on market structure.

That is very difficult task. Most people do not change their belief easily. Changing beliefs requires ability to question your own assumptions, be willing to listen to new arguments and then erase previous beliefs and rewrite new beliefs.

Beliefs drive your behavior. Unless they change your trading is not going to change.