How Hard is It to Develop a Viable Algorithmic Trading System? (Part 3)

Good-sounding ideas may have persuasive impact when coming from sources perceived to be reputable.

If this is true then since some gurus say strategies in the public domain will not be effective, many retail traders will not even try to develop them. Paradoxically, the less attention a strategy gets, the more likely it is to work. The big institutions with all the funding, financial engineers, and computing equipment are less likely to be deterred by claims that “sound” good. Running trading strategies through the mill and live trading in large volume is what they do. They will cut to the chase to see if anything is really there.

The retail traders who are persuaded not to develop these public strategies may also be more prone to curve-fitting. If they believe it will take something more than simple public strategies to be profitable then they may try complex combinations of indicators in hopes of finding the Holy Grail.

This is all speculation, of course, and a digression at that…

Going back to the original forum post, I responded:

> At the risk of getting my nose chopped off,
> I’m going to voice an opinion here:
>
> I completely disagree based on semantics.
> The difference between a trading strategy
> and a trading system is money management.
> In reality, unless people are trading
> “small” they are trading systems. An
> infinite number of possible trading
> systems may be derived from any given
> trading strategy. Some may win with a
> trading strategy and others may lose with
> the same trading strategy based on
> differences in money management and
> personal/institutional tolerance.

In other words, given the many different subjective functions that will be used, the different combinations of data used to develop systems, etc., any given strategy may give rise to a large number of potential trading systems. Edge is not likely to be squashed out so quickly, then, because there aren’t an infinite number of big money players and it is the big money players who rule the markets.

Take these last three posts, shake them up, roll, and what do we have?