Originally posted at forexfactory on Jan 2, 2011:
The example of the housing market shows that they can be grossly inefficient, and get destroyed in any financial instrument. There was a pretty huge transfer of wealth from the banks to the owners of the Credit Default Swaps, whether they were hedge funds, other institutions, individuals.
People try to rely on their ‘tools’ which heavily influences their own skill level. Why would someone want their own skill level be dependent/heavily dependent or constrained by moving averages, or other technical indicators? However, the human mind is an amazing thing, and no ‘tool’ should constrain it’s potential.
Many tools do fail in some market conditions, and excel in others. But there are certain tools, certain concepts, certain foundations of every market that never fail, if you know how to put the pieces together. Things such as understanding what is generating order flow, and liquidity, etc. Once you truly learn them you can adjust the parameters, the criteria for trending markets, for ranging markets, for markets about to reverse. They never fail, as long as you are following the order flow that will be generated after you establish your position. In this situation the tools do not fail you, the tools do not constrain you, the only thing constraining you is your interpretation of the tools, your interpretation of the information and your own perception of the market, and what is driving it. Once you have the best ‘tools’, the best concepts, the best foundation of markets, knowledge of what generates order flow, the only thing stopping you is not a search for better tools, but your own capacity to properly assimilate the information of what will generate order flow.
Just my thoughts. I am not trying to change you from your quant view. I am just saying that their are tools out there that never fail, so long as you can attain the proper interpretation of the information that they are giving you. I dislike having a trading system that works only in one type of market, especially if it forces me to trade the market conditions that produce losses. So either I like to have a trading system that works in all markets, OR I can identify when the market is about to enter the market conditions that produce losses so I can stay out during that time. Then develop a way to determine when the market will enter the conditions that produce profits. It can be difficult, but doable. Why? Because there is someone on the other side of every transaction that will either make money or lose money. If they can figure it out then so can you.