Innovate around big edges
One of the common dream of many traders is to find a static and permanent trading system with well defined rules , back test it and then and execute it. They believe that once they find that then it is just a matter of discipline and psychology to stick with it.
In reality there are very few static systems like this. Systems continuously evolve and static system become outdated. Even in the quantitative world there are no static and permanent methods. the systems continuously evolve and adopt to market circumstances.
If you compare the game of trading to fishing , you will find the nature of fish available in the pond changes, the kind of fishing equipment changes, which affect your chance of finding fish if you don't change. The pond becomes too popular with many fighting for same fish. The pond dries up . The fish migrates. In effect the variables keep changing.
The traders who start with static view of the market are doomed to failure as they are making a basic assumption about nature of the game.
there were number of very popular strategies from 2003 to 2009 which stopped working and wiped out people trading that. The long only focused daytraders of 1999 got wiped out once market changed and the dot com era changed.
While basic tendencies of market remain same and larger structural edges remain constant there are subtle variations and good traders constantly tweak basic approach to account for that.
Larger edges like momentum, value, mean reversion remain valid but the specific application of that needs to be updated periodically. You will seldom find a trader trading same static system for decades.
In reality there are very few static systems like this. Systems continuously evolve and static system become outdated. Even in the quantitative world there are no static and permanent methods. the systems continuously evolve and adopt to market circumstances.
If you compare the game of trading to fishing , you will find the nature of fish available in the pond changes, the kind of fishing equipment changes, which affect your chance of finding fish if you don't change. The pond becomes too popular with many fighting for same fish. The pond dries up . The fish migrates. In effect the variables keep changing.
The traders who start with static view of the market are doomed to failure as they are making a basic assumption about nature of the game.
there were number of very popular strategies from 2003 to 2009 which stopped working and wiped out people trading that. The long only focused daytraders of 1999 got wiped out once market changed and the dot com era changed.
While basic tendencies of market remain same and larger structural edges remain constant there are subtle variations and good traders constantly tweak basic approach to account for that.
Larger edges like momentum, value, mean reversion remain valid but the specific application of that needs to be updated periodically. You will seldom find a trader trading same static system for decades.
Key to survival and prosperity in this game is to continuously innovate around big structural edges.
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