I have to say that I find this idea that brokers will work out
your strategy slightly fanciful.
I agree & accept that if you are a consistent winner that
brokerages might try to shadow your trades... that's great as far as
I'm concerned because they simply add to your own alpha (by entering
trades in the same direction after you) not erode it.
However, the idea that brokers are smart enough to even begin to
untangle a complex profitable strategy simply by looking at the trades
is pure imagination in my opinion.
Again, I talk as a trader who trades a defined system on a
discretionary basis... including contingency plans for all my trades,
chase plans for late entries... I often reverse a position if I'm wrong
etc...etc...
I would wager a bunch of smart people could look at my trades for a
very long period of time and make little sense of them ...
--- In amibroker@xxxxxxxxxps.com,
"huanyanlu" <huanyan2000@...> wrote:
>
> Yiki, tashikani soodesu. You have made a valid point, as the
profit have to be made somewhere and those accounts would be subject to
scrutiny.
>
> Huanyan
>
> --- In amibroker@xxxxxxxxxps.com,
Yuki Taga <yukitaga@> wrote:
> >
> > Huanyan,
> >
> > Splitting the trading probably won't help you. If you could
identify
> > the weakest trades (the ones you would, perhaps, direct to
brokerage
> > B), you would eliminate them completely. So the results over
time of
> > split trades should approximate your overall results. And of
course
> > if you shunt only the bad trades to broker B, then the
results at
> > broker A are going to be even more spectacular. Brokerage A
is then
> > going to have even more incentive to examine your play.
> >
> > There would seem to be no way to disguise your play, because
you are
> > not a market specialist. ^_^
> >
> > Remember, it's not the amount you win (splitting would affect
this
> > number, but it's meaningless), but the consistency and
the
> > methodology and the risk metrics, that will draw attention.
> >
> > One way to disguise the system itself would be to
occasionally throw
> > in the deliberate "anti-system" trade -- a throwaway trade
made on an
> > absolutely contrary-to-the-system basis. That might
throw off a
> > search for your system. (Perversely, it might also win.) ^_^
But
> > unless you did it often enough to influence your real returns
(which
> > you would not do, because then your returns would be
negatively
> > affected), then it would have no value in terms of stopping
someone
> > from shadowing you.
> >
> > I've never worried about brokers taking the other side of my
trades.
> > I'd end up owning the companies if they did that long enough.
^_^
> > But just as I assume that they look at good traders, I would
assume
> > that they look at clueless traders (although clueless traders
tend to
> > run out of money, so they would be limited to looking at
clueless
> > traders that seem to have a wellspring of money somewhere to
> > replenish their accounts). I wouldn't mind taking the other
side of
> > any trade made by someone with a demonstrated capacity for
being
> > wrong.
> >
> > But I think the practices are almost impossible to stop.
Brokers are
> > often members of exchanges (if not always), and they routinely
> > generate data for the exchanges (margin long outstanding and
margin
> > short, for example). So they have at least some valid reasons
for
> > analyzing data.
> >
> > And as I say, human beings, generally, are not going to pass
up any
> > profit opportunities. If you are trading at *MY* firm, and
you are
> > consistently making a pile of money, with risk metrics that I
find
> > acceptable, I'm going to have a look at your action. A very
close
> > look. Think of me as the camera behind the overhead mirror at
> > Caesar's Palace. ^_^
> >
> > Yuki
> >
> > Saturday, June 6, 2009, 12:26:07 PM, you wrote:
> >
> > h> Interesting idea, Yuki.
> >
> > h> Can someone verify if it is a common practice for
brokers to
> > h> investigate the performance of its clients ( of courese
internally
> > h> and act in low profile ) and then try to figure out the
> > h> methodology of the successful clients ?
> >
> > h> If it is the truth, then is it advisable to split the
trading
> > h> operation among accounts in different brokers ?
> >
> >
> > h> Huanyan
> >
> >
> >
> > h> --- In amibroker@xxxxxxxxxps.com,
Yuki Taga <yukitaga@> wrote:
> > >>
> > >> KM> Why would it be discovered?
> > >>
> > >> I would be inclined to believe that any system that
is employed for
> > >> any reasonably lengthy period of time will be
discovered. I think
> > >> this is particularly true now in the data processing
age. Human
> > >> beings are, after all, human beings. And behind all
the machines,
> > >> there are human beings. You can't trade without
exposing yourself to
> > >> the machines (which "remember" all your trades
forever) and, very
> > >> importantly, to the people who have access to the
machines, or who
> > >> control the people with access.
> > >>
> > >> I don't know where this might be illegal or legal,
and I'm sure it is
> > >> in some places and maybe isn't in others, but if I
was a ranking
> > >> officer in a brokerage firm, you can be absolutely
sure that I would
> > >> know exactly who my most profitable clients were
over time -- using a
> > >> basket of metrics to look for outstanding
performance that fell
> > >> within allowable risk parameters. And you can also
be sure that I
> > >> would spend no small amount of time and effort
trying to ascertain
> > >> how any sustained profitability that was in the
bounds of my metrics
> > >> was being generated. I'd be running the data
periodically. Need I
> > >> say more?
> > >>
> > >> If you are siphoning money out of the market on a
consistent basis,
> > >> and doing it better than almost anyone else (basis
simple RoR, better
> > >> risk-adjusted numbers, some the combination of the
two, or whatever
> > >> measures you happen to be looking for), it is going
to be noticed.
> > >> There is almost no way to get around this. Your
identity can be
> > >> cloaked without too much trouble, but cloaking your
play is much more
> > >> difficult -- because you have to play. Conceivably,
you could break
> > >> your play up among several sets of machines, but if
you are
> > >> successful enough I think your play is going to be
detected.
> > >>
> > >> If you are small potatoes, you have less of a
problem I'm sure.
> > >> Almost no problem. But if you have a system good
enough to interest
> > >> someone else, you aren't going to remain small
potatoes very long.
> > >> And in the meantime, you are going to be putting up
some trade
> > >> statistics that should attract someone's attention.
Let me change
> > >> that to *will* attract someone's attention.
> > >>
> > >> It's called the smell of money. And one of
humanity's most powerful
> > >> olfactory capabilities is detecting that odor.
> > >>
> > >> Yuki
> > >>
> > >> Saturday, June 6, 2009, 10:32:32 AM, you wrote:
> > >>
> > >> KM> The statement, "they will be discovered and
traded", contains two
> > >> KM> assumptions, which I find difficult to accept.
> > >>
> > >> KM> First, addressed by Brian below, it will be
discovered only if it is
> > >> KM> used to an extreme extent. The system may,
for example, just trade
> > >> KM> relatively small lots in large and
universally held equities. One could
> > >> KM> possibly make millions from futures and forex
without effecting the
> > >> KM> markets one iota. Why would it be discovered?
> > >>
> > >> KM> Second, even if it were discovered and even
became widely publicized, it
> > >> KM> still might not be traded sufficiently by
others to have any effect on
> > >> KM> its success. The system might, for example,
require considerable
> > >> KM> patience by the trader, so much so that only
a very small number of
> > >> KM> traders would be willing to use it. Or it
could be based on some theory
> > >> KM> that all but a few would reject, despite its
effectiveness.
> > >>
> > >> KM> It's believed by many, including yours truly,
the the most effective,
> > >> KM> low risk/reward, way to make money from the
stock markets, is to write
> > >> KM> books and give lectures about how to make
money in the stock market.
> > >> KM> This system has been going on for years, is
well known, and so far
> > >> KM> appears to be quite profitable. I doubt that
it will ever stop working.
> > >>
> > >> KM> -- Keith
> > >>
> > >>
> > >> KM> brian_z111 wrote:
> > >> >>
> > >> >>
> > >> >> <snip> I find the statement that all
trading systems stop working
> > >> >> eventually to be too vague.<snip>
> > >> >>
> > >> >> Howard has provided supportive arguments,
to this theory, at various
> > >> >> times, and we can not accuse Howard of
being vague or equivocating
> > >> >> when it comes to trading (I thank him for
that).
> > >> >>
> > >> >> As I recall the basis of his view is:
> > >> >>
> > >> >> - all systems will fail eventually
> > >> >> - they will be discovered and traded
> > >> >> - trading the edge erodes the edge
> > >> >>
> > >> >> By 'erodes the edge' Howard means that if,
for example, I am trading a
> > >> >> system and buy, at the entry signal of
100.00,, and sell on the exit
> > >> >> signal of 103.00, I have made a profit of
3%.
> > >> >>
> > >> >> If a lot of people start trading the same
system (same market/
> > >> >> timeframe etc) then the second person in
will have to buy at, say
> > >> >> 100.01 and sell at 102.99 (because my
action in buying/selling before
> > >> >> them moved the bid/ask (theoretically
trader 2 ends up with a profit
> > >> >> of 2.98% , calculated on a commission free
basis and so on, down the
> > >> >> food chain).
> > >> >>
> > >> >> According to this theory, the efficiency of
the trade has been
> > >> >> diminished i.e. what was a 3% trade has
been reduced to a <3% trade(on
> > >> >> average) due to other traders piling in to
the trade.
> > >> >>
> > >> >> My critique of that argument is:
> > >> >>
> > >> >> - the reason why any trade (tick) is made
(appears on the tape) is
> > >> >> unknown to us (except for our own trade)
> > >> >> - all ticks, other than those that are
trading our system, are noise
> > >> >> (to us) and therefore random
> > >> >> - ticks associated with our trade, that are
not placed by us, will be
> > >> >> dispersed in time, (due to the various
trading time delays experienced
> > >> >> by individual traders).... so they will be
interposed by random ticks
> > >> >> - in a pure market (no commissions and no
manipulation of the trades
> > >> >> by insiders) there is a 50/50 chance that
my tick (if I take the
> > >> >> market price) will be less than the
midprice of the bid/ask when the
> > >> >> signal was generated at the exchange.
> > >> >> - my price could move away from the
original midprice substantially,
> > >> >> in a fast market, but no one can know the
reason for the fast trading
> > >> >> or attribute it to our system (my system
only produces a buy signal
> > >> >> once every 2-3 days on average - fast
markets happen all of the time,
> > >> >> when I am not trading my system, and
presumably slippage is still
> > >> >> occurring, in other transactions, so the
evidence is against the fact
> > >> >> that my system is the cause of slippage and
fast markets).
> > >> >>
> > >> >> The exception to that is if a 'player' with
a big account, relative to
> > >> >> the liquidity of the instrument, is also
playing the same system, at
> > >> >> the same time, in the same
market/instrument/timeframe.
> > >> >>
> > >> >> So the question is:
> > >> >>
> > >> >> - to what extent are 'big players' trading
a system, in a highly
> > >> >> liquid instrument, with enough clout to
move the market?
> > >> >>
> > >> >> - IF big players are system trading what
type of system would they be
> > >> >> likely to play and what% of the total funds
they are controlling are
> > >> >> they likely to risk on any single system?
> > >> >>
> > >> >> - are they likely to play with large enough
sums of money to erode the
> > >> >> efficiency of the system they are trading?
> > >> >>
> > >> >> - IF they are playing a system, with large
amounts of money, is it
> > >> >> likely that their system would involve
entering all of that money at
> > >> >> the same time i.e. they would trade in such
a way that they would make
> > >> >> an intraday splash OR are they more likely
to trade systematically
> > >> >> over longer timeframes (that might be a
reason that intraday sytems
> > >> >> don't get eroded as often as EOD systems
... if that claim, made by
> > >> >> some, is true).
> > >> >> - IF big players do trade in such a way
that they are 'moving the
> > >> >> market' do you think they would be so naive
that they are unaware of
> > >> >> this and haven't factored that in to their
strategy..... if 'moving
> > >> >> the market' is negative to their strategy
would they do that ...if
> > >> >> 'moving the market' is positive to their
strategy are they more likely
> > >> >> to implement that strategy in illiquid
instruments/small timeframes OR
> > >> >> the reverse?
> > >> >>
> > >> >> But all of that is just a nice theory.
> > >> >>
> > >> >> The best argument against any theory is
evidence.
> > >> >>
> > >> >> Some forum members have listed some example
trading systems that have
> > >> >> been published for decades AND they are
still going strong AND their
> > >> >> performance has not 'faded in and out'.
> > >> >>
> > >> >> Anyone who wants to defend the 'trading the
edge erodes the edge'
> > >> >> argument now needs to prove that these
systems were never published
> > >> >> AND that after they were published they
ceased to work.
> > >> >>
> > >> >> That won't be an easy task because
Samantha's unequivocal example (a
> > >> >> 10 bar SMA on monthly data) is based on a
trading idea (MA crossovers)
> > >> >> that has been around forever (Tomasz even
ships AB with a example code
> > >> >> in his formula folder and the manual) and
there are published studies
> > >> >> on the net (rigorous studies at that) that
are relatively current.
> > >> >>
> > >> >> However, the more imporanat question seems
to be, if these systems did
> > >> >> not fail, due to being published and/or
traded, why didn't they?
> > >> >>
> > >> >>
> > >> >> --- In amibroker@xxxxxxxxxps.com
<mailto:amibroker%40yahoogroups.com>,
> > >> >> "Leading Edge Systems" <rdcpa@> wrote:
> > >> >> >
> > >> >> > I am new to Amibroker and I have been
using Howard's which I find to
> > >> >> be excellent, as a guide to learing AB.
> > >> >> >
> > >> >> > I find the statement that all trading
systems stop working
> > >> >> eventually to be too vague. First "stop
working" is a relative term
> > >> >> and would have a different meaning for each
of us. Also I think
> > >> >> inefficiencies can come and go in cycles
based on the popularity of a
> > >> >> particular type of trading. Once an
inefficiency has been traded away
> > >> >> due to over-popularity, it probably will go
out of fashion and then
> > >> >> become an inefficiency again some time in
the future. All this depends
> > >> >> on the specifics of what we mean by "stop
working" and "a system".
> > >> >> >
> > >> >> > Rich
> > >> >> >
> > >> >> >
> > >> >> >
> > >> >> > --- In amibroker@xxxxxxxxxps.com
> > >> >> <mailto:amibroker%40yahoogroups.com>,
"samu_trading" <samu_trading@>
> > >> >> wrote:
> > >> >> > >
> > >> >> > > All,
> > >> >> > >
> > >> >> > > In his really good book
Quantitative Trading Systems, Howard
> > >> >> states that all trading systems will stop
working forever at some
> > >> >> point (because the inefficiency in the
market they exploit will be
> > >> >> killed by everybody jumping on board).
> > >> >> > >
> > >> >> > > On the other hand you have
momentum / ROC based systems working
> > >> >> forever now, same for trend following MA
crossover systems like The
> > >> >> one propagated by Mebane Faber. Momentum
and MA rossover
> > >> >> trendfollowing does seem to work "forever".
> > >> >> > >
> > >> >> > > Any comments from the gurus here?
> > >> >> > >
> > >> >> > > Thanks, Samantha
> > >> >> > >
> > >> >> >
> > >> >>
> > >> >>
> > >>
> >
>