Unadaptive trading systems are doomed

I will go straight to the point without any mambo jambo. Imagine a situation where a trader group has found that when a new indicator reaches a value below 20 it would mean that in 55% of the time the price would start rising. Hence this provide a trader an edge. Of course, the group starts to use it and extract money from other traders. Eventually other traders start to analyze why this specific group is making money. After much work other traders slowly one by one also realize this new amazing money making indicator which provides an edge. This is where the magic starts to end. The indicator slowly starts to lose its edge. But why does it lose its edge? Imagine that this new fascinating money-making indicator goes below 20. Now this will cause a strong and fast reaction in the market where only the fastest traders will get their orders filled when the indicator hits 20. The other traders which where left to the station don't of course like this. They want to hop on too. So they alter their strategy so that they start buying as soon as the indicator hits 21. Now only the fastest traders again get their orders hit and once again most of the other traders get stranded on the beach. This all creates an on-going battle where traders constantly rise the indicator value where they will hop on eventually killing the edge there originally was. In the end this market anomaly is dead because of the greed of various market participants.

This all sounds like there is an ever on-going battle in the market between different trader groups. This is true. In order to survive in the market one has to constantly pursue new market inefficiences in order to make money and survive. But how can a normal private trader then survive in the market? He doesn't have the necessarily skills, money or time to develop new systems. This is the harsh reality. If you have read Jack Schwager's Market Wizards there was an interesting interview of one of the top traders. I can't remember his name but I remember he saying this all quite well: "All of this is beyond the reach for a normal private trader. Markets change all the time and systems that worked before don't do it anymore. We are in constant battle".

There's a lot of talk of markets changing, and in some ways they do, but the important characteristics remain the same. A market is just the human extension of the ecology around us that has played out for millions if not billions of years.

And no, trading is not a arms race between indicators.

Mr J has it perfectly, the market is just a larger picture of human choices, and ever since the start of time no one has been able to successfully predict constant human behavior and that is for one simple reason, we do not always act rationally.

I also am not a strong follower of EAs. While they can be profitable and some can be useful, i believe that the best way to trade is a combination of indicators, price action, S/R and trend lines. This combination can not be fully placed into a EA (as of yet) and especially one that will be able to throw out the phony signals.

You are right. Historical prices are simply the graphical representation of human psychology. This is why I think that not even the most sophisticated computer models can never model or predict human behavior since our mind is much more complex than we ever think.

I think you got me wrong. The indicator acted just as a reference. It holds for everything in the market. If a system/indicator/setting etc. has even a slightest edge it is soon removed from the market because markets are always right - they are perfect and efficient. The most interesting part is that without us traders the markets would not be efficient because WE remove all the inefficiencies.

My argument is that we are predictable, not that we aren't . Yes, our brains are complex, but the vast majority of our thoughts are quite simple. The thoughts and actions of any particular individual may vary significantly, but overall human behaviour is reasonably consistent.

How do we feel when our children are born?
How do we feel when someone insults our partner?
How do we feel when someone threatens our children?
How do we feel when someone we care about dies?

The vast majority of us will feel similarly. Obviously some more and some less, but few will feel differently. Of course these are our most emotional situations, but why would it not apply to trading, even if only to a lesser extent?

Another related argument to why we're predictable is because we must be. A market mimics an ecosystem, and everyone must play their part. We develop a food chain, fall into a position in it, and generally behave as that position should.

We don't need to act rationally to be predictable. In fact, I'd argue that irrational reactions in many situations are more predictable.

If value is subjective, can prices ever be wrong? If they can't be wrong, then how are we making the market more efficient? Anyway, I'd argue that we benefit from the system more than the system benefits from us - we heavily feed on the other participants, and bring them what? If the market was an organism, skilled traders would be a virus (this is not a negative statement). Given enough time, we would consume our host.

It's an evolution in progress. Maybe in the beginning it was a like a virus consuming a host. Along the way it turned into a symbiotic relationship. When it reaches to a certain point where it threatens the skilled trader's own existence, evolving is the next crucial and natural step in preserving life for survival.

Is it likely they have a process already set in place? Have they evolved to an extent where they basically are farming (manipulating the system) new and ignorant money?

Even if they can, why would they milk the market dry? The name of the game at the high end is perpetual income. They don't create a "one-time" system... They create a perpetual harvesting system. Of course, they have to give the ignorant money some hope and promise to keep the cycle going.

How does the transfer of power to a minority help the majority? It could be argued that the powerful minority keep the system together, and that the system benefits everyone overall, but I would argue that the system is an inevitable result (and that the systems don't differ much).

There can only be so many lions on the savannah. I'm sure the concentration of power fluctates over time (though still always somewhat of a pyramid shape), but I doubt it accumulates, as there's only so much that the masses can lose. I'm not sure the masses had any real power to lose in the first place.

I think it's a game of musical chairs rather than the rich gaming the system. How many of history's great figures and families have retained their status?