A trading strategy can have an edge only if few know about it. If a lot of traders use it, the strategy won’t have an edge. If all traders use it it’s profitable to trade the other way.
Let’s say all traders want to buy. But there’s no one who wants to sell. So the traders can’t make money. But why can you make money if you trade the other way? Why if a lot of traders use the strategy but not all of them you can’t make money if you trade the other way? Does it matter how many lots you trade? What if you trade only micro lots instead of a lot of lots?
What is the logic behind these ideas? Why it’s good if you have an edge to don’t be used by many traders? Is this a game theory question? Does anyone know if these ideas are discussed in detail on other sites?
I've read about these ideas on this site (read David Sklansky's posts, David Sklansky is a gambling expert): http://forumserver.twoplustwo.com/30...22/index6.html
http://forumserver.twoplustwo.com/30...22/index8.html
Sklansky:
"Let me make clear that it is not illogical to believe that a TA tactic can work, especially if combined with some knowledge of the stock. For instance you may discover that a stocks that announces a positive earnings surprise and then advances three days in a row is a positive short term EV short on the fourth day. If there is plausibility to this tactic and statistical backtesting shows a stong correlation it is reasonable that it will work. BUT ONLY IF FEW KNOW ABOUT IT. If lots of people know about it it won't. If everybody knows about it you can make money going the other way."
"One thing that can be said with certainty about any specific technical analysis tactic is that the assertion that "one reason it works is because so many people are using it, ie it is a self fulfulling prophecy" is necessarily fallacious. Sort of like the broken window fallacy. Do you see why?"
Let’s say all traders want to buy. But there’s no one who wants to sell. So the traders can’t make money. But why can you make money if you trade the other way? Why if a lot of traders use the strategy but not all of them you can’t make money if you trade the other way? Does it matter how many lots you trade? What if you trade only micro lots instead of a lot of lots?
What is the logic behind these ideas? Why it’s good if you have an edge to don’t be used by many traders? Is this a game theory question? Does anyone know if these ideas are discussed in detail on other sites?
I've read about these ideas on this site (read David Sklansky's posts, David Sklansky is a gambling expert): http://forumserver.twoplustwo.com/30...22/index6.html
http://forumserver.twoplustwo.com/30...22/index8.html
Sklansky:
"Let me make clear that it is not illogical to believe that a TA tactic can work, especially if combined with some knowledge of the stock. For instance you may discover that a stocks that announces a positive earnings surprise and then advances three days in a row is a positive short term EV short on the fourth day. If there is plausibility to this tactic and statistical backtesting shows a stong correlation it is reasonable that it will work. BUT ONLY IF FEW KNOW ABOUT IT. If lots of people know about it it won't. If everybody knows about it you can make money going the other way."
"One thing that can be said with certainty about any specific technical analysis tactic is that the assertion that "one reason it works is because so many people are using it, ie it is a self fulfulling prophecy" is necessarily fallacious. Sort of like the broken window fallacy. Do you see why?"