What getting information early does not tell you.

Greg Harmon hit on something important today in his post Early News Releases are a Smoke Screen.

If you thought while sitting in your home office, or mother’s basement or dorm room or even at one of the big trading floors, that you could compete with even the slowest of the HFT firms you are just delusional.

In other words, compete in areas you have a chance at winning.  Know who you are and what your strengths are.  Imagine if a 6’0″ guard (basketball) complained about getting his shot blocked in the post by the 7’2″ center or the center complaining about getting beat off the dribble by a guard on the wing. The current system in not even but it is making strides in fairness.  If you learn how to trade and not rely on a mechanical advantage you will do much better in the long term.

No matter what the outcome of this investigation you will still be losing. Deflection. If that enrages you then go start a business baking cupcakes instead of trading. This game is rigged, and this latest round of news is proving that it will not be changed anytime soon. Learn to play in the sandbox that is there in front of you or get out.

I have written about this before in, What the Market Promises You and Markets Aren’t Manipulated, People Are. Markets are like a relationship.  Each person brings something the other needs/wants/can’t provide. A trader gets opportunity and the market provides a place for the opportunity.  Don’t be in an abusive relationship but do not ignore the fact that relationships are always give and take.

The missing link

Early information does not tell you how much to risk, where you are wrong, and where to get out; in short it does not tell you how to execute. (The argument you often hear is that if only I knew something once, that might be true for you but most of the time there are huge infrastructure costs involved that will eventually be abandoned for us to use.) The three most important things about a trade are execution, execution, and execution.

How are you “right” but not make money?  Execution.

How did you “know” what was going to happen but not make money?  Execution.

How should you have lost less?  Execution.

How should you have made more?  Execution.

What matters most in long term success? Execution.

This is oversimplification of something complicated but information is not execution.  Participants are not guaranteed to show up or react in an expected way.  It is part of the whole picture not the whole picture.

Assumptions

The two assumptions that traders make are there are risk free returns and everyone makes money.  In reality there are trades that are “worth” the risk and everyone has an “opportunity” to make money beyond their costs.

Regulation and cleaning up markets

If you want to make changes to the way things works, in anything, don’t come off as a conspiracy theorist and know every angle.  You don’t get many chances to make a real difference.  Don’t assume the problem is obvious or people will have the same emotional attachment.

Conclusion

There are so many changes that happen in markets in terms of structure, rules, participants, trends, news, etc.  Those aren’t things you can control, to beat a cliche to death, you can only control your reaction.  Compete where you can and speed and information isn’t probably one of them.  However, the spread is decreasing if you want to try it out one day.

If you think everything I said is wrong do some backtesting including the execution and the report.  eli@traderhabits.com

 

2 Responses to What getting information early does not tell you.

  1. […] can only control their own actions/reactions.  (Trader Habits, Dragonfly […]

  2. […] Mes­sen Sie sich in Berei­chen, in denen Sie eine Chance haben. (Englisch) […]

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