The Tone of BS (Part 4)

From just four of 12 paragraphs I have been able to falsify this thesis on trading. For the sake of completeness, I will continue on.

I believe [5] happens quite frequently.

I agree with [6].

[7] seems somewhat meaningless. I don’t care what strategies this author prefers. I have no idea whether this author is a profitable trader, anyway.

[8] opens another can of worms. How do I know if seasonality reduces exposure and improves performance? The author claims this but for evaluation purposes, I would have to see the data or citation behind this conclusion.

[9] is also quite meaningless. This sounds good but how does the author know?! The author could start with “in my experience,” which would leave me to evaluate the author’s trading experience. Without that qualification though, the statement is downright absurd. How am I going to evaluate the easiest way to make money? The author does not even list different approaches for comparison. This is totally baseless.

I agree with [10]. I cannot say whether it is a good or bad thing to do all that research without any live trading, though. Perhaps staying out of the markets would save me from severe losses! Perhaps staying out would prevent me from precious gains. It would be good and bad, respectively, in these two cases.

I think [11] is a restatement of [9]: not very meaningful.

I think [12] is meaningless. Yes, looking for better odds to gain than lose would seem like a solid strategy. Taking what the market gives you, though, is always extremely clear in retrospect rather than in the moment.

Overall, I think these paragraphs are yet another collection of trader gobbledygook. Parts sound good. Most of the rest are platitudes, propaganda, and other nonactionable ideas that would do little more than stop critical thinkers in their tracks with looks of puzzlement on their faces.

The Tone of BS (Part 3)

Last time, I interrupted the analysis with a challenge impossible. I want to elaborate on that today with regard to why we could never prove that institutional traders are more profitable than retail traders (or vice versa).

As a quick review, [2], [3], and [4] all suggest that institutions are profitable whereas retail traders are not. How would we design a study to evaluate that claim?

First, we would need large sample sizes of systems traded by institutions and by retail traders. Given the systems, perhaps we can evaluate them for profitability.

I need not think too hard to realize attaining these samples would be, in and of itself, an impossible feat! I would be hard-pressed to find even one [never mind a “large sample size” of] institution[s] that is willing to share its “secrets.” Many retail traders also feel the same way about their own “proprietary strategies,” which would make it extremely difficult to get the second large sample size, too.

Another problem with this proposition would be the time and money required to do this study. I could be making phone calls to institutions for a long time before ever getting cooperation! With regard to retail traders, how would I even find them? I would also have to operationally define “trading system.” If someone attempted a trade once or a handful of times, would that constitute a “trading system?” Retail traders range drastically from “full-time trading for a living” to “Vegas-style trades for a hobby.” People are not all that open to detailed questions about their financial dealings especially when strangers are doing the asking.

A third problem regards the questionable justification for the immense cost of doing this study. So what if I find institutional or retail traders to be superior as a whole? The answer won’t help anybody. This study would not be actionable to me or any other trader as we continue doing what we do.

Therefore, I’m quite sure no valid study of the sort has ever been done and any claims about the institutional or retail world being more profitable than the other are baseless.

The Tone of BS (Part 2)

In the last post I presented an anonymous opinion from the internet.  I numbered paragraphs at the end of each in brackets.  I will analyze the opinion one paragraph at a time.

[1] I do not disagree that the institutional world is a secret one.  Legends abound and stories recycle.  I can hardly imagine what life is like with the professional firms since my background is not in finance.  I could try and read financial forums but I don’t know what information there is true reporting from professionals and what is fictional or hyperbole.

[2] The only problem I have with this paragraph is the suggestion that institutional firms trade profitable systems.  I believe retail traders have been conditioned to think the institutions consistently make money.  How do we know?  Certainly funds go out of business all the time due to poor performance.  How about just last year, for example? Some funds completely blow up (e.g. LTCM anyone?).

[3] The claim here is that systems in the public domain are not profitable. The only way to know if this were the case would be to live trade book systems or to develop those systems ourselves to see if they still have potential. I certainly don’t think anyone can wave a hand over and say “those systems that didn’t work for the institutions are written up in books, never to work for anyone else either.” How would the author know?

I agree with [4]. The two worlds are very different. Is this relevant to differences in profitability between the two? I do not know. In thinking about what it would take to answer this question, I would argue such a study to be impossible! Can you think of some reasons why?

In four paragraphs, I think I’ve seen all I need to know to determine how I feel about the thesis presented!

For good measure, I will continue this evaluation in the next post.