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I strongly disagree with the statement that we are playing against the "big boys".
Imagine that you are the manager of a several B$ fund and you have decided that you should be short oil. Over the next 2 week for example your algo program will build you a short position of several thousands contracts breaking them in small trades to emulate the vwap for example.
Imagine that as a small retail trader I am the counterpart of one your orders because I think that oil will be up 50T by the end of the day. Who win who lose? None. You provide me with liquidity and I provide you with liquidity. We have not the same time frame and not the same objective. I am not in competition with you. The only in competition with you is in that case the other fund manager who as "predicted" that oil is up and who is buying thousand of contract. One of you must lose.
R.I.P. Olivier Terrier (aka "Okina"), 1969-2016.
Please visit this thread for more information.
Can you help answer these questions from other members on NexusFi?
Without hard statistics the brain will play tricks with what you see among traders. There will always be a big boy who uses martingale betting strategies throwing more and more money at the market and seeming to always come out on top. What you don't see is all the big boys who've turned into little boys continuing to do this.
R.I.P. Joseph Bach (Itchymoku), 1987-2018.
Please visit this thread for more information.
Even when I was young in the 80's the stories of "big guys" organizing a squeeze of a market to make all the small guys bleed already belonged to the past. I heard thing like that in sugar, cocoa etc but it was almost before I was born...
With today liquidity and HTF and so many different funds with some many time frames and objectives, squeezing a market would be at least a suicide. The only "natural" squeeze that we can observe are during crash when most of the participants have the time horizon and the same direction.
R.I.P. Olivier Terrier (aka "Okina"), 1969-2016.
Please visit this thread for more information.
I'm not sure whether the squeeze still exists in the way you defined them Okina, but I believe that certain setups talking advantage of spoofing (for instance) to trick some traders to buy/sell do take place to this day.
The same goes for certain iceberg orders which are triggered with the purpose to absorbe a certain number of buy/sell orders and then attempt to over-run them in the opposite direction.
Probably doesn't happen as much in thinner markets but I do believe it does in thicker ones (e.g. Stoxx 50, ES, Treasuries)
Suppose a seasoned hedge fund manager who has the account capacity to trade 2,000 lots at a time has been watching the Order Flow for his preferred market for a few hours and has concluded that, for the time being, he is the biggest player in there.
Suppose the market conditions are favourable, i.e. the market is not 'roaring' in one direction.
Let's say now the market has reached an area where some sort of reaction is expected.
Would the hedge fund manager not be at an advantage knowing he can nudge the market around?
you have to nudge the market from a few different correlated instruments at once otherwise there are algos out there that will eat any amount of volume when they check that it's just one player going gung-ho on one instrument.
R.I.P. Joseph Bach (Itchymoku), 1987-2018.
Please visit this thread for more information.
Size can actually be a pretty big hindrance. Believe me, the "big boys" may have a lot of resources at their disposal but their sheer size makes them much less agile than odd-lot traders like you or me. Many of the systems and techniques employed by successful retail traders could never be used by large institutional players.
Consider a portfolio manager for a large hedge fund; would he be able to put up sufficient percentage returns on a multi-billion dollar book by scalping futures markets for a few ticks here and there? Especially in an exchange-traded market where every trade immediately hits the tape? No way. He'd be like a cow in piranha-infested waters. You might be able to quickly scalp 50 or 100 lots in the most liquid markets like ES, ZN, or CL but anything much bigger than that will leave a large enough footprint to get preyed upon by more agile scalpers, prop shops and HFTs. Indeed there are substantial liquidity costs associated with trading size, and these liquidity costs generally force all of the so-called big boys to trade much bigger moves and longer time-horizons than the typical scalper or day-trader.
I'll tell you all a little story about one of these big boys, a well-known and seasoned veteran of the bond markets who recently had to confront the "time to give up" question himself.
Most of the discussion thus far has concerned itself with independent retail traders going through some early and maybe persistent struggles when first getting started. Many of these traders will give up long before ever achieving any success. But what about those who have seen success, made solid careers out of trading, but then one day lost their edge?
Oh it happens.
A number of years ago I got to know a guy who had led a very long and successful Wall Street career. He had been head of government bond trading at more than one primary dealer; he had traded prop at Goldman for years during the pre-IPO days of the 1990s; he had later run a large and very successful global-macro book for another major financial firm. In short, he'd built an exemplary career with an excellent long-term track record and was very highly respected in his field. Then a few years ago he accepted an offer from a large global-macro hedge fund to run a $300mm book for them.
And suddenly he started to struggle.
Maybe the pace was different. Maybe his execution was suffering from decreased liquidity (trading over the counter interest rate derivatives in a post Dodd-Frank environment). Maybe his many years of insight were no longer enough to compete with the new relative value pricing models a lot of his competitors were using. Maybe the general psychology of rates trading had changed beyond his own comprehension in the era of QE and central-bank bond-market manipulation. Maybe it was all of these things. Maybe it was none of them, and he was just getting old...
After a pretty dismal first couple of months at the new firm he had his capital allocation cut by more than half. And he continued to struggle. Loss of confidence and self-doubt crept in...
Finally, some 18 months into his new job, he was done.
He made that call. He decided to retire. Whatever edge he'd had, or thought he had, was gone. His confidence was gone. And he didn't have the time, energy, or inclination to start anew.
A lot of very successful traders eventually lose their edge. The financial markets and the entire world are constantly changing. New banking regulations or exchange rules are instituted; new technologies are introduced; new products enter the market; secular shifts in behaviors and psychologies occur; liquidity rises or falls - all of these things can destroy one trader's edge while at the same time presenting new opportunities for those who are willing and able to find them. But how will you know if it happens to you? And how well will you be able to adapt?
For a scalper, it might reveal itself quickly. A few bad days or weeks would probably be enough to warrant a serious pause and review, if not a total rethink. But what about a swing trader operating longer time frames? Some of the most legendary and successful investors in the macro world will often suffer monthly or even annual losses. When can they know if they've truly lost their edge, that things are truly different now, or if the roulette wheel simply just landed on red 26 times in a row?
This is a question all big macro and swing traders must wrestle with from time to time. How will they know? How will you know?
