Easy edges in the markets for retail participants?

It appears some retail traders make a living, perhaps even a good one, trading mechanically or fully automatically, an "edge" based on some repeating pattern.
But isn't the existence and long term stability of easily exploitable repeating patterns in price movement, counter to good sense?

By which I mean; shouldn't such opportunities disappear due to the counter action of more professional, higher capital, better equipped, quicker, market participants?
Or, were those to be inescapable consequences of price dynamics, shouldn't they be acted upon more quickly than possible to small retailers, thereby cutting them out?

Assuming that these simply accessible opportunities exist and perdure, why is that? What is their place in the "ecology" of trading? What do "mechanics" and "automatons" (yes I'm being facetious) get paid for?

- ras72

 

Do you ever see one such system in your own eye?

 

Yes. Consistently profitable trading based on easily exploitable repeating patterns feels so counter-intuitive at the hard right edge to most retail traders that they can't bring themselves to trade a plan based on these patterns even when they've seen with their own eyes that it works over and over again.

The average retail trader is a gambler trading without a plan, afraid of losses and constantly wanting a way to ensure the certainty of the outcome of individual trades. This is why you read so many comments on forums about how easily exploitable patterns fail. Of course they fail! There'd be no market if there was a pattern that always resulted in a specific price follow-through.

A properly researched and well-defined trading plan demonstrates how to exploit the repeating patterns for net profits over series' of trades, not how to guarantee that every appearance of such patterns will result in a profit.

HFTs trying to front run big orders for fractions of cents all day long are not what creates large price moves. Institutional traders and investors deploying capital in ways that benefit from longer-term moves (or relieve risk during times of fear and uncertainty) create trends and wide ranges in longer time windows than a day or a week.

If an institutional investor wants to position itself for a multi-month or multi-year swing in the price of something (currency, commodity, stock index, individual stock, etc.) based on a long-term fundamental or technical outlook, it will be accumulating or distributing much larger positions than a retail day trader or short term swinger, and certain price action footprints (patterns) left behind when this happens repeat again and again because basic human nature hasn't changed much at all throughout recorded history. Basic human nature has remained pretty much the same despite small incremental changes in how people manage themselves in groups.

 

Nicely put. There are many many patterns with win rate > 60% for reward:risk > 1:1. But exploiting them requires first finding them and then having a sound trading plan. This is a job only for very disciplined and skilled traders. Most retail traders look for quick and painless gains. Got to hark hard to make money trading.

 

You seem a profitable mechanic. So, say, you've set up your workshop in a shed (or in your studio as the case may be. Whatever). You proceeded to professionally develop your strategies on your $2k commercial software, work for which you are rightly proud, after all you were tooling away in that shed for months, interminable sessions, sweaty coveralls, greasy hands and all. Then you take your new toy to the market.
But in the market there are machines far, far, superior to yours. Surely you cannot ignore that there are thousands of entities with vastly superior resources and experience than you.
Don't you think these operators fully understand the edge you use and they see it perfectly. Do you really think you are in any way better than they are?!

The large positions you mentioned are not unloaded half haphazardly; they are handled by experienced traders getting paid to do it at the most favorable prices. And HFTs play a different sport.

If mechanics and automatons make money (and you know if you do) then, I ask again, how can that possibly be?

Shouldn't such opportunities disappear due to the counter action of more professional, higher capital, better equipped, quicker, market participants?
Or, were those to be inescapable consequences of price dynamics, shouldn't they be acted upon more quickly than possible to small retails, thereby cutting them out?

- ras72

 

Forget about HFT, sub-second timeframes and 'edges'.

Markets are volatile and go up and down continuously. What prevents you from buying the bottom of a downswing and selling the top of an upswing sequentially?

Surely not impossible for a retail trader?

 

Say I develop my strategies using a cheap Excel spreadsheet and a free charting program. I notice certain price patterns that occur shortly before each significant intraday price swing occurs.

There's a problem, though. There's no way for me or anyone else to know in advance whether any individual appearance of these patterns will result in a significant intraday price swing in my favor.

I discover, however, that 100 days worth of spreadsheet analyses of price moves following each appearance of the patterns demonstrates that more often than not the appearance of this pattern will result in a significant price move and by entering trades every time the patterns appear, and managing the risk:reward (stop loss and profit target orders) in a way that exploits the significance of the price moves favorably I can end up with enough profits to live off of.

I'm not bringing a new toy to market. I'm bringing an old toy that's been around as long as there've been price charts and people analyzing the patterns price forms when it reaches certain supply/demand levels and turns the other way.

I'm not trying to outsmart anyone, and not trying to avoid losing trades. I'm simply exploiting the concept of positive expectancy based on the fact that when there's more demand than supply price will rise, when there's more supply than demand, price will fall and at certain levels price will do this strongly enough that I can profit from the inertia inherent in those moves as price progresses from one key level to another.

I'm a small retail trader. I don't have to deploy huge sums of money, therefore I don't have to outsmart anyone or have expensive powerful tools to get what I need.

Ras, how do you make money trading? Are you a "big operator" or do you have some sort of secret method like inside information?

 

Lot of opportunity to respond..., but I’d rather distill it down (and change it up)

This thread reminds me of a whale and a dolphin

Whales set the course – dolphins follows along

And while a whale can certainly crush a dolphin

A dolphin can certainly out maneuver a whale

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As for HTF – their actions are reflected in PA… same as all participants (dark pool activity excluded)

Btw, these badass HTF’s…,

Are they buying / selling / capturing the spread / something else – as not all do the same thing

In truth – none of it matters anyway

===========================

The exact same behavior – has been exhibited in the mkt – for as long as there’s been a mkt – AND…. (or should I use SO - I get the use of these two confused at times)

It’s repeatable

It’s identifiable

It’s definable

It’s exploitable

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Btw, and back to the whale / dolphin analogy

Both must come up for air – so both have a weakness (actually several weaknesses I simply picked the most obvious)

In short;

Swim with the mammals… else you’ll end up swimming with the fishes (thinkaboutit)

RN

 

No.

Yes.

Money does not automatically translate into brains. Donald Trump is living proof of that. Finding trends efficiently is not public knowledge. It's anybody's game, including resource-poor retail traders.

 

This. Also, the markets aren't an endless source of liquidity. A Goldman trader earning $2m+ won't waste time doing something that returns less than $100k annually, just not worth the time and effort. People compete in their own categories.