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Systems and market reaction

  • Post #1
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  • First Post: Sep 30, 2006 12:06pm Sep 30, 2006 12:06pm
Say there is a system that works consitently and in all market conditions.
Now, would widespread knowledge about this system be a good thing or bad?
I'm guessing here:
1. Up to a point it wouldn't matter,
2. then start to be a good thing due to price movement/following
3. then if it get's to widespread it would start to lose it's effectiveness?

I've heard that serious/advanced traders do not want to share their system, would that be be because of fear of the 3rd point?
But with forex, where retail traders are a drop in the ocean, would the 3rd point even occur?
The problem with a widespread system is that people will start to outsmart the system and it will eventually collapse. For simplicity's sake, say that you buy on Wednesday and sell on Friday, which turns out to be extremely profitable. Somebody will start to get in on Tuesday night and get out on Thursday night, and make more money. Others will see this and start to do it as well. So before you know it, the system is ruined by people who "cheat" on the system and eventually cause its demise.

Hope that makes sense,
andersenws
"Youth is the trustee of prosperity." - Benjamin Disraeli
Quoting quathar
But with forex, where retail traders are a drop in the ocean, would the 3rd point even occur?
Good question, but this question can only be 100% rhetorical in my opinion.
Quoting andersenws
The problem with a widespread system is that people will start to outsmart the system and it will eventually collapse. For simplicity's sake, say that you buy on Wednesday and sell on Friday, which turns out to be extremely profitable. Somebody will start to get in on Tuesday night and get out on Thursday night, and make more money. Others will see this and start to do it as well. So before you know it, the system is ruined by people who "cheat" on the system and eventually cause its demise.

Hope that makes sense,
andersenws
Hmm... but even so (that's stipulating that you can "outsmart" the system in the first place), when would such "cheating" affect the market enough to even make a differance?

twinchell: Maybe, theoretical atleast. There has to be some advanced econometrical way to calculate/measure how large a slice of the volume going in one direction you would need to move the market.
  • Post #5
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  • Last Post: Oct 2, 2006 8:34am Oct 2, 2006 8:34am
There is an old farmers story that goes like this:
All the local farmers got together and decided that if they grew less potatoes the price would go up and they could make more money with less work. So they all agreed the next year they would cut their crop in half.
The next year came and the price of potatoes dropped because every farmer grew twice as many potatoes in hopes of making a killing.

I think the forex market works very similar, greed takes over and keeps changing the market dynamics because the way to make a lot of money is to stay a step or two ahead of everyone else.
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