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A Time Traveler and a Trade

  #5 (permalink)

North Carolina
Trading Experience: Beginner
Platform: NinjaTrader, Tradestation
Favorite Futures: es
Posts: 644 since Nov 2011

This question has been posed in various forms. I have posited even in different forms. It is based on the "utility value" of money and the risk one wants to take. The utility value is going to be different for different people. The optimal low risk action is very trivial: before the time traveler leaves, you ask for some form of proof. You provide this proof to multiple backers who insure your bet.
The expectancy doesn't change: what changes is your risk of ruin probability.

The other concept you are trying to grapple with is whether or not it is easier to make money from the markets statistically or opportunistically. Efficient markets suggest that it is easier to profit from the market opportunistically then statistically because the imposition against efficient markets is less. There is a greater risk of going off kilter though trying to take opportunistic bets. So, the best traders probably combine the two concepts. For example, if you identified Bitcoin early in the process (opportunistic) but traded it with a statistical edge. Another example might be identifying a market theme (opportunistic) such as higher volatility but trading it in a statistical way. The difficulty problem of trying to profit from the market only statistically is that markets aren't normal.

So, it just means it is less likely that a trader will be able to find success with an entirely mechanical method because the mathematics do not support it because the statistical properties change. This doesn't mean that system trading doesn't work. It just means that without knowing hidden factors then the probability is lower. But, if you can find persistent edges, those exist too then you can trade a system over a longer period of time, sure.

Trend following strategies just if you apply them statistically to markets don't do very well. On the other hand, if you can identify a theme driving the market, a rational reason a market should rally or decline over time and then apply the trend following strategy your ability to profit is not as much an "imposition" against efficient markets.

Last edited by tpredictor; May 18th, 2018 at 02:57 PM.
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