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Great reply. Good perspective. Thanks for sharing.
Ken
-----Original Message-----
From: amibroker@xxxxxxxxxxxxxxx [mailto:amibroker@xxxxxxxxxxxxxxx] On Behalf
Of sidhartha70
Sent: Tuesday, July 08, 2008 9:23 AM
To: amibroker@xxxxxxxxxxxxxxx
Subject: [amibroker] Re: NEW USER - simple question.......
Just to give another viewpoint on this, and perhaps a slightly sunnier
assessment... I also believe traders can often believe the opposite. i.e.
that markets are completely efficient and therefore it's impossible to make
money. My own experience has shown again and again that markets have pockets
of inefficientcy and that continues, albeit the form is constantly in
evolution.
Take a simple, liquid stock like VOD.L. There are literally endless
strategies that could be designed (billions)... it's my guess that no more
than a few thousand are actually employed or 'scanned' at any one time.
Actually I think a few thousand is very generous. I believe it could be
considerably less than that. I used to work at the proprietary trading desks
of Merrill Lynch, Barclays Capital and Nomura (all in London) over the last
12 years.
I can assure any reader that notions of a supercomputer churning away
testing millions of strategies is way off the mark. They trade a handful of
tried and tested strategies that are constantly tweaked and improved... or
even more than that, they trade off proprietary information about money flow
that is not available to the open market.
The point is, there is so much institutional money flowing through the
market... fund managers, market makers filling client orders, options
traders hedging, index arbitragers, portfolio traders trying to match
VWAP... the list goes on an on... and in my experience, none of these guys
give a stuff about technicals or the short to medium term movement of the
stock. That's not their game. They are either hedging so want immediate
cover or they are much longer term, or they are measured on a different
benchmark to individual proprietary traders like you and I. We are a
fraction of an enormous marketplace, the vast bulk of which isn't trying to
do what we are.
OF course that doesn't mean making money is easy... it's not... but I
believe the reason is more fundamental to free markets rather than the idea
that millions of traders or a supercomputer, is scanning millions & millions
of strategies as we speak. I believe free markets have (for more than half
the time, probably more like 80-90% of the time) very low signal to noise
ratio's... and they therefore do approach random behaviour most of the time.
This can give the impression that markets are efficient... but they are not.
Anyway, it is possible to consistently make money... it always will be, by
definition there will always be opportunities in the market place. Don't be
put off by talk of super computers scanning every possible market
efficientcy. I'm still constantly surprised at how inefficient markets
are.... Look at the recent countertrend rally we had to 1440 in the S&P in
the middle of a bear market. ;-)
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