The Only Constant Sure Thing in Trading

I hate using generalizations when it comes to trading. Humans love simple, constant rules that maintain their relevance and somehow ring true to their own point of view about making money trading markets.

Markets are in and always have been and always will be in a constant and dynamic state of change. That is the only market constant that I am aware of. I have been reading posts and profering my own opinions based upon my own experiences here on ET for many years. Many posters have asked for the key to surety or the holy grail couched in 1,858,453 different ways.. and counting. If your personality and emotional constitution requires certainty and reassurance - please be advised to get the fuck out of the trading business right here and now.

Maybe the simple phrase is: "adapt or die?". How cliché and useless. Relevant, yes - but utterly lacking in substance.

Anyone pining for “the good old days” is really telling you that he had an edge for a specific period of time (however long “the good old days” lasted) and it did not withstand market dynamics and the inevitable market cyclical changes in behavior overtook what seemed to be working ( hence the inevitable end to “the good old days”). It seems like everyone knows someone who made beaucoup $$ during the tech run of the late ‘90’s – and then they gave it back when the automation and HFT craze began. From my own personal experience, I find that many pit traders make absolutely terrible screen traders. Efficient electronic markets with equitable time-stamped order queues (both FIFO and Pro-rata) have matured to the point where buying bids and selling offers and making markets in today’s environment is about as appealing as milking a black mamba. Which is why floor traders almost always got their asses run over when they attempted to transition to the screens. On the floor, you could buy a bid, and you stood a decent chance of lining up a broker working a customer bid and you hit him when the market turned. You had maybe a second to scratch the trade depending on where you stood in the pit – and floor space was defended and encroached upon using physical violence. Think Lions of the Serengeti. On the screen, at least in the flat price individual instrument markets, the best bids or offers trade out completely in milliseconds. The days of pure scalping manually using a mouse are long gone. Many think that automated scalping is gone for that matter. There is a lot of order book gaming and spoofing and flipping going on. But even the “flippers” working on the best bids or best offers got their asses handed to them eventually.

I have always been the type of person to Zig when the rest of humanity Zags. I'm not a fader or counter-trend trader - but I'm a big fan of the principle of Occam's razor when it comes to trading markets. I have come to evolve over time to NOT keep trying to apply different principles and techniques and mind games in order to stay ahead of the same market name day after day month after month year after year ( like ES, CL, 6E, etc. ). In order to stay consistent with constantly changing markets, I want my clients to build their own markets. It's a HUGE advantage for spread traders. We can run correlation studies between different products to find new synthetic spread combinations. We can move forward or back in the price curve for intramarket spreads ( same product, different month/year ), we change durations, we add or subtract legs. In other words, we tune the spread combination to "behave" and model correctly for us.

I make my new clients go through this terribly agonizing ritual of building out ( and I'm completely serious ) about 600 different spread combinations in every electronic market known to mankind before I will even consider getting into the sexy stuff. I do supply thorough starter sheets and an excel-based spread combination generator, but even so it is a great deal of work for them. And months later when they choose to go live, some might have over 1,000 different spread combinations on their workspaces. Another way to adapt to changing markets is to expand your universe of tradeable products - and that we do to an extreme. I want my clients to cherry pick trade entries. I want them to be selective. If a particular product suite doesn't make sense to them - don't trade it. They have 800 other products to trade for God's sake.