Welcome to NexusFi: the best trading community on the planet, with over 150,000 members Sign Up Now for Free
Genuine reviews from real traders, not fake reviews from stealth vendors
Quality education from leading professional traders
We are a friendly, helpful, and positive community
We do not tolerate rude behavior, trolling, or vendors advertising in posts
We are here to help, just let us know what you need
You'll need to register in order to view the content of the threads and start contributing to our community. It's free for basic access, or support us by becoming an Elite Member -- see if you qualify for a discount below.
-- Big Mike, Site Administrator
(If you already have an account, login at the top of the page)
The problem with SSRN papers is that they are written by academics that have never traded, and certainly never had any skin in the game. As yogi said, " "In theory there is no difference between theory and practice, but it in practice there is."
Sure so for instance the most obvious example I can think of is that the Federal Reserve started saying as early as September 2021 that they would wind down their buying programs and then start raising interest rates. We started to see high core CPI again in November of 2021 as well. So to everyone paying attention at the end of 2021 it was obvious that we'd see rates rise, but the market didn't really start pricing this in until January. January being a time of year when many businesses that deal with bonds adjust their holdings and strategies.
Or how about an inefficiency on a lower timeframe? The non-farms payrolls for June 2020 was expected to be massively negative, and the actual came out massively positive. Yes there was a big jump on the news release, but it was such a massive change in expectations that it was more than reasonable to expect a trend day. It was a huge win even if you waited for the NYSE open to take a long.
Or how about a more nuanced one? Last Thursday CPI came out above expectations again. I took a long on micro treasury futures for a quick 5bp rise in interest rates. I took the quick profit, and ended trading for the day. However, there was a massive amount of options positioning going into the move. As those options unwound we saw the entire move retrace perplexing traders everywhere.
I bring this last item to emphasize that it's not about "fundamentals" per say. Changes in expectations about future flows or fundamentals do predict future flows, but there's plenty of other drivers that have nothing to do with fundamentals. For instance gamma hedging, or end of month fund rebalancing. If you know how the hedge funds and market makers trade then there are select cases where you can very accurately predict their flows. But you typically need information outside of just the price and volume you get from the exchange. Past price and volume is somewhat effective at predicting volatility, but it is not very predictive of direction especially on a short timeframe.
First of all you're more likely to find information relevant to trading on arXiv.
But second of all the researchers on these papers are often the most accomplished individuals in our field. Of course, not all papers are of equal value. Those that publish good work are usually snatched up by the banks and other top institutional funds.
Or you use your profile in research to start your own firm. Take for instance Jean-Phillipe Bouchaud who continues to put out regular studies on significant topics. He went on to co-found Capital Fund Management in France. Their Discus fund has been a top performing CTA fund for the past 5 years.
So we're literally talking about the most accomplished traders in the futures trading field revealing significant details about the true nature of markets. Their research is literally available on arXiv for free, and yet retail traders are completely oblivious to it. They're more interested in whatever educators are selling related to price action or yesterday's point of control. Missing the forest for the trees is an understatement.
The question was about examples of informational inefficiencies.
You can see the non-linear impact of large trades when you look at almost any large move. The chart will tend to have that characteristic square root curve to it.
I get what you are saying and I don't necessarily disagree...It is possible that if many traders pile onto the same trade...if everyone goes long for example, demand will soon dry up creating an imbalance and the path of least resistance is southwards...as everyone looks to book profit, liquidity will dry up and price will move against you rapidly as you exit.
Sure, that is possible...in the extreme, uniform sense with exact same entry and exit points (extremely unlikely)...but this is why trading liquid markets is important...and how many retails are trading enough size to move the ES lol? In general though, if many people trade the same signals, in a highly liquid market, its not a a bad thing. Example being how many consider Fib ratios as a "self fulfilling prophecy".
I do absolutely think patterns are random...it is impossible to tell what exactly will happen next on the hard right edge. But this is where genuine skill comes into play...it's not what happens, its what you do about it that makes all the difference.
Bravo my boy! This is how it is in reality. There is obvious randomness.
It's not what happens, which we are expecting naturally as traders, BUT it is how we react to the situation of the probabilities. It may work or may not. Therefore, checking our losses keeps us in the game!
The charts are a visual representation of what is going on if read correctly. Trust me a lot of what you need to know is buried right there in a naked chart if you can read it correctly.