New Market Environment

In the past, it was absurd for traders that made money to write books and reveal their methods.  That has changed since the 90s, maybe because the markets have gotten bigger and the edges have gotten smaller.

Mean reversion used to be the key to profits in the stock market, until hedge funds started to take over the world and institutionalize those strategies.  It still works, just not as well as in past markets.  Same can be said for trend following the commodities market back in the 1970s.  Once a strategy becomes popular among the institutions, be it trend following or mean reversion, it ceases to be as effective.  In some cases, they turn into negative EV (expected value) strategies.

As a student of the markets, I view systems trading as an admission of defeat.  A trader is admitting that a rote system is better than he is.  Systems don't adjust to market conditions or have any "AI".  To say that a system can beat a good trader who can analyze scenarios for news/earnings, factor in psychology, feel the price action, and adjust for changing conditions effectively is saying a lot.  I've always admired traders like Paul Tudor Jones, a person who put his whole energy into trading, who didn't rely purely on charts or fundamentals, but traded on feel based on market fundamentals, investor psychology, charts, and past experience.  There are guys like Jim Simons who program systems to make consistent profits but he's constantly changing the systems and reanalyzing results with a team of geeky programmers with quant backgrounds.

The war out there in the markets gets more and more competitive.  The speed of the market is much faster than even a few years ago.  I'm not talking about reactions to news or economic data.  I'm talking about intraday and swing patterns.  Swing patterns that used to last 3 days is compressed into 2, obvious intraday patterns are gobbled up immediately and leave the hesitant behind.  For example, this past week, I projected an intraday reversal on Thursday.  Instead, the selloff started during Asian hours, instead of in the middle of the day on Wall Street.  These days, pullbacks in uptrends during bullish days are almost nonexistent, like a stairstep up pattern, up and then flat, up and then flat.  Same with bearish days, down and then flat, down and then flat.  The bots have run amok in the thinned out field and have taken away the emotion of trading.  Fear and greed are now computerized into programs which make buy and sell decisions based on blackbox signals.  The only way to win in this game is to constantly adjust to the new environment, yet still maintain a sufficient amount of conviction.