Lea​ding a co​mmu​ni​ty of tens of thou​san​ds of tra​ders, many of them being al​go​ri​thmic tra​ders, I have been fa​ced with a spe​ci​fic que​stion very often. It usua​lly goes as fo​llo​ws:

“Do you know or have you seen any tra​ding st​ra​te​gy that de​livers con​si​stent pro​fi​ts for a long pe​riod of time?”

Such a que​stion is fre​quen​tly asked by peo​ple see​king what can be ter​med as the “Holy Grail” of tra​ding. A st​ra​te​gy that once con​ceived, will be pla​ced on a server to be exe​cu​ted and ge​ne​ra​te mo​ney con​si​sten​tly. Well, to be ho​ne​st, in all the yea​rs I have been invo​lved in tra​ding and ga​mbling st​ra​te​gies, I have never seen such a gem. If I had, I wou​ld not be wri​ting this ar​ti​cle but I wou​ld be en​jo​ying a lu​xu​rious life on a tro​pi​cal island. I can​not claim that the​re is not one out the​re but I rea​so​na​bly dou​bt it.

My dou​bts are foun​ded on the fo​llo​wing thou​g​hts. The bi​g​ge​st mi​scon​ce​ption of the holy grail see​kers is that they assu​me that the ma​r​ke​ts are a kind of a na​tu​ral system, so​me​thing like a ga​la​xy with moving sta​rs and pla​ne​ts ro​ta​ting around them. Thus if they find the se​c​ret laws that set this univer​se in mo​tion, they will be able to con​stan​tly pre​di​ct the fu​tu​re, at lea​st in an acce​pta​ble accu​ra​cy that will allow them to ge​ne​ra​te su​stai​na​ble and re​pe​ti​tive pro​fi​ts. As a re​su​lt of this thin​king, tra​ders spend hou​rs and hou​rs ana​lyzing past data, tr​ying to find re​pe​ti​tive pa​tter​ns whi​ch cou​ld be used for fu​tu​re ma​r​ket move​ment pre​di​ctions. So​me​thing that su​r​p​ri​ses many of them is that as soon as they find them and sta​rt tr​ying to exploit them on fu​tu​re ma​r​ket con​di​tions, they su​dden​ly seem to stop wo​r​king. As a re​su​lt, they have to go back to the dra​wing boa​rd tr​ying to fi​gu​re out what went wrong or sta​rt con​st​ru​cting con​spi​ra​cy theo​ries about what ha​ppe​ned and the bu​lle​tp​roof tra​ding system did not even​tua​lly work.

What holy grail see​kers miss here is the fact that the ma​r​ke​ts are in no way an un​con​scious na​tu​ral system. In​stead they are con​scious living or​ga​ni​sms that rea​ct to any atte​mpt that tries to put them un​der con​t​rol. In si​mpler ter​ms, any atte​mpt to exploit see​ming​ly pre​di​cta​ble even​ts of the ma​r​ke​ts will affe​ct the ma​r​ke​ts be​havior and the fu​tu​re pre​di​cta​bi​li​ty of such even​ts. The​re are mi​llions of pa​ttern see​kers out the​re and pro​ba​bly most of the pa​tter​ns are de​te​cted not only by one per​son. So as soon as the​se pa​tter​ns sta​rt to get tra​ded by many peo​ple in a cer​tain way, di​ffe​rent than in the past, then they stop exi​sting sin​ce the ma​r​ke​ts move to a new type of an equi​li​b​rium.

A si​mple me​ta​phor of what is going on in the fi​nan​cial ma​r​ke​ts is spo​r​ts. The​re is no eter​nal win​ning st​ra​te​gy to win a foo​tba​ll game. Many st​ra​te​gies have been su​cce​ssful and used for a good pe​riod of time by great foo​tba​ll tea​ms, like to​tal foo​tba​ll, ca​te​na​ccio, tiki-taka and many more. But none of them la​sted fo​rever. As soon as oppo​nen​ts adju​sted their pla​ying style again​st such st​ra​te​gies, then they be​ca​me use​le​ss and ma​na​gers had to look for other ways to win the game. With the exa​ct same way a foo​tba​ll ma​na​ger nee​ds to adju​st his pla​ying style to keep an edge over oppo​nen​ts, a tra​der nee​ds to adju​st his/her tra​ding st​ra​te​gies to account for the new ma​r​ket con​di​tions. Great foo​tba​ll ma​na​gers can be con​si​sten​tly su​cce​ssful over their en​ti​re ca​reer wi​thout sti​cking to a sing​le st​ra​te​gy but by con​si​sten​tly evo​lving their game. In like man​ner, su​cce​ssful tra​ders can have a con​si​sten​tly pro​fi​ta​ble ca​reer by con​ti​nuou​sly imp​roving their tra​ding me​tho​ds. The​re is no holy grail in foo​tba​ll and the​re is no holy grail in tra​ding.

Su​mma​ri​zing the above, my hu​mble option is that the que​st for holy grai​ls in tra​ding is a wa​ste of time. The only con​si​stent way to ma​ster tra​ding in fi​nan​cial ma​r​ke​ts is to be able to exploit the oppo​r​tu​ni​ties of your time, stay ahead of the co​mpe​ti​tion in ter​ms of st​ra​te​gies used and con​stan​tly evo​lve your tra​ding me​tho​ds. In​stead of loo​king for a holy grail, fo​cus on ana​lyzing the cu​r​rent ma​r​ket con​di​tions, co​mp​re​hend the fun​da​men​ta​ls driving the wo​r​ld eco​no​my at that mo​ment, find cu​r​rent sho​rt-term pa​tter​ns and oppo​r​tu​ni​ties, tra​de, make pro​fit and re​peat.

Wri​tten by: by Pa​na​gio​tis Cha​ra​la​mpous, Head of Co​mmu​ni​ty Ma​na​ge​ment of cT​ra​der at Spo​twa​re.

Fi​r​st pu​bli​shed in FxSt​reet.