OK, who here doesn't understand the simple concept

Actually, with today's bandwidth, I don't think you would have any trouble executing, out of your home, the same scalping strategies the sharks use at, like,


http://www.schonfeldsecurities.com/


or


http://www.icapdirect.com/index2.htm


for instance.


There is always a new fast/intraday game being found and played somewhere, and the best way to discover it is to just move around and tag along with whomever is hot in a given year. The better talent - which requires more smarts than just being a copycat - is to understand why the different games work when they do, so as not to get left high and dry when they stop working. A lot of used Ferrari's get passed around.


Anticipating your response, I intentionally weighted my list of heroes to off-floor characters. I wouldn't be surprised if, among the S&P-futures traders I am familiar with, the bigger score isn't being made off-floor. The CME pit is mostly empty half the time, and it's local-on-local - with no fish - the rest of the time.


In fact, other than maybe Mike Milken or Tom Baldwin, I have trouble thinking of any of these traders whom you "can't possibly beat" who actually made huge fortunes. And I promise you, you go to the NYSE floor, or UBS in Stamford, you wil find people who would have trouble beating 2-4, they have dropped to the level of their advantage. It's just mass production.


They just vegetate around their advantage like moss, and that moss is receding as the advantage dries up. It's just a million fractions of pennies anyway, being processed by half-conscious factory workers. The ones who get a clue strike out to manage money, or to build a new software tool for the factory workers, or something.


Really, your only option is to learn the off-floor game from someone who has already taken the losses. But, unfortunately, there aren't any solid books on the underlying theory, nothing like TTOP. And it's a little late in the game to become a Turtle, though that is the longest-term, easiest in-your-spare-time way to get started.


But the long-term futures game is still the big game. Understand that NOBODY has an advantage in long-term futures - because nobody has any local information from, like Japan, and nobody is using any economic model that is worth diddly. Soros' "reflexivity" model, for example, was actually pretty half-baked.


The reason Soros had an edge, in my opinion, was not only because he had put in endless late-night reps as a grunt currency arb, but because he truly LOVED the geopolitical drama of Europe. There aren't too many people who know the first thing about economics who give a hang about Europe. But that was also Soros' undoing, because he made like a $2 billion philanthropic contribution to Russia at his clients' expense!


I promise you, Ray, Russ, and everyone else:


NOBODY HAS AN EDGE ON YOU IN PREDICTING WHERE THE YEN WILL BE NEXT YEAR. It's wide open! And the best your competition can do is to buy when it starts going up, and sell when it starts going down. If you can take it an inch above that - nothing like 40-80 hi-lo mind you - you win.


Besides, you know why most people who lose at poker lose. It's not because they're not smart enough, or because there's not enough information at the table, or because the odds are stacked against them from square one. It's because they're too lazy to learn, and too emotional to execute it even after they have learned. They're safer punching a clock than counting on themsleves to not call 75o.


The off-floor game is wide open to people with discipline, people who can function when their whole day isn't mapped out safely in advance. Most people just don't like walking minefields, it makes them miserable, when the mines are their own errors.


perry

The first way to achieve game selection in the markets is to see how much other people are making, and then copy them. It's like the 1.5 BB/hr in hold'em, it is extremely helpful to know what you are shooting for, and if there even is anything to shoot for.


But the problem is that you're always late to the game. And, since bad periods are common, you can't know the game has gone bad until you've had a number of them in a row.


The second method of game selection - and where I hope to have some luck as a pioneer - is by watching the game, and being able to tell by eye how much money is there, and how to go after it. People have been using computers to do this but, since everyone has a computer, the stuff you can sniff out with a computer tends to get eaten up very quickly.


It's not unlike poker, where, once you have learned everything else, you realize it comes down to game selection. But you had to struggle against unbeatable games, and sweat all the details, to get there.


You know what to look for that will enable you to win, and how to adjust to what you see. You finally rise above just playing tight because you are used to loose games, or just playing loose because that is your disposition, and instead you learn how to adjust.


leroy

The reason trend followers blow up when they get big is because CTA investors are so afraid of blowups.


So, when they invest, the primary thing they're looking for is, like, a whole decade without a big drawdown. They think that, well, if it didn't blow out last year, it is has a better chance of probably not blowing out this year. But it's precisely because it has had such a good stretch that it has become precarious.


Now, every style can make money. And when a particular style is going to blow up is anybody's guess. But when a particular program goes for a protracted period without a big hit, it is just luck.


And the result is these huge, unbalanced concentrations of money in styles which, for no particular reason, have gotten lucky.


And it's just a simple product of the longer a run a particular thing has had, and therefore the more people you have chasing after it, the worse the blowup is going to be when it does come.


It's like, any old forest can support deer. But if one partuclar forest happens to be extra bountiful for a few seasons, so that every deer on Earth walks away from a perfectly habitable forest to move there, of course the first drought or whatever and ther're going to be carcasses everywhere.


If only managers could tell clients where to put their money, and had the heart, they'd clue them in that you have to be contrarian. Good is bad. You want to live in a forest where the weak dear are constantly being shaken out, never a paradise.


Paradises are too hard to conceal. Drawdowns in a track record are good.


leroy

Your explanation of why big trend followers blow up is more crucial than the one I posted a while ago. By itself, my explanation (the larger your position, the more trouble you have exiting) might only result in declining performance as the trend follower acquires more assets under management. But put them together and that explains why the most successful trend followers blow up the worst.


Now my question is: how can you be a contrarian while following trends?

In essence, the single manager's strategy appears unchanged - both to him and to the client.


But the strategies of all the individual clients have changed, when they have allocated their money to him.


It's basically a misapplication of back-testing involving game theory. They think they are repeating, when in reality a great deal of learning on the fly and adaptation is taking place! They ARE doing something different.


Contrarian is figuring out what people have learned, and doing the opposite.


It's not because they are big that blows them out, being big is just a symptom of fluid discovery and concentration. It's because people have happened upon a way to pick what strategy other people are using.


It is worth noting that, if you bought at-the-market every day at 1:00, and sold at-the-market every day at 2:00 - and did this as reliably as the sun will shine every day for years and years - your strategy would be nearly immune to losses. Market particpants would at first be surprised, then compete to fade your orders non-redundantly, and eventually evolve to absorb and offset them perfectly.


So there is hardly anything "new" that works, whereas older things are safe by nature. If I reallocate some of my money from A to B, B has to allocate it to doing what A was doing anyway, or the whole dance falls out of whack. It's all evolved and interlocked.


elroy

If there is a strategy, or a philosophy, that has had no drawdowns over the last 10 years, it is almost impossible to run a computer across the chart and not catch some piece of it. It's like a pyramid with a thousand tips, no matter where you start digging, eventually you'll uncover the whole thing.


Whereas if a strategy has even one large drawdown, that effectively pollutes the entire neighboring region. You uncover any sub-piece that includes that section, it will be magnified by the probing, hit-or-miss nature of experimentation. As a result, you'll start working in a different direction.


What this means is that the recent whipsaw in the bond will send charthounds off on the wrong scent for years to come - until it stops happening.


leroy