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In this case profit exhaustion doesn't really work. The assumption of technical analysis is that those with the deeper pockets move the market in certain ways a

In this case profit exhaustion doesn't really work. The assumption of technical analysis is that those with the deeper pockets move the market in certain ways and patterns and it's the job of the short-term speculator to anticipate those ways. But if you assume enough rich people do technical analysis and pattern day trading you can earn money by doing what's essentially technical analysis, but with different patterns - ones designed to capitalize on the old patterns used by the rich. Keep in mind, I'm not saying technical analysis works. I don't think it does, but that's without seriously examining the evidence. I'm just saying that the diminishing profit argument doesn't work. At least not as presented.

ImPostingOnHN 3y ago
> The assumption of technical analysis is that those with the deeper pockets move the market in certain ways and patterns and it's the job of the short-term speculator to anticipate those ways. if this were the case, it seems likely that others with deeper pockets than you, perhaps other high frequency traders, would rapidly exhaust those profit opportunities
- pclmulqdq 3y ago
  Which they do. Many kinds of HFT trading strategies actually look a lot like a more mathematically rigorous version of technical analysis. It is very likely that they take all of the alpha that TA traders used to get.
  - vgatherps 3y ago
    HFTs generally consider shorter timescales (both in the feature set and the forward horizon) than human TA would lean on, and make tremendous use of microstructure information rather than outright price movements. Having said that, “let’s take difference to EMA” is pretty the one-size-fits-all solution, and there are no shortage of firms looking at minute to hour long trades to gobble up anything human TA practitioners would ever try to trade.
    - stouset 3y ago
      > HFTs generally consider shorter timescales than human TA would lean on This just further emphasizes the point that retail investors relying on TA are having their lunch eaten. HFTs are picking the minute opportunities because that's all that exists. If there were longer-term strategies that were reliably profitable, do you think they simply ignore them?
      - vgatherps 3y ago
        sub-minute opportunities are absolutely not all that exist, in many ways it’s the opposite. The hft opportunity space is extremely competitive, and much more zero sum than the mid/low frequency space. A relatively small set of players compete for the lions share of anything one might consider high frequency. The set of trades you compete for and the relevant information to generate forecasts is limited / similar across firms, and table-stakes on engineering side are very high. > If there were long term strategies that were reliably profitable, do you think they would simply ignore them? Yes? Mid frequency trading (say holding period of 5 minutes to ~1 hour) is a totally different class of quantitative trading, from the features you use to how you build portfolios (if at all) to how you execute on forecasts. At least one top-of-the-game hft firm (that already relied on forecasts instead of speed) got burned on their first attempt to enter mid frequency.
        stouset 3y ago
        > At least one top-of-the-game hft firm (that already relied on forecasts instead of speed) got burned on their first attempt to enter mid frequency. Put differently: "A bunch of smart people who have proven to be able to reliably extract profits from microsecond trades tried their hand at exploiting patterns on longer timescales and were unable to. Even though I have less money, information, access to markets, and am just one person, I believe I can succeed where they failed."
        vgatherps 3y ago
        I don’t know why you think I’m saying TA works. The only thing I’ve said is that HFTs are by and large not responsible for trading away those inefficiencies
- username332211 3y ago
  The thing is there's no reason why new patterns can't exist, created by the patterns of the HFTs, who could create new profit opportunities for other HFTs or day-traders. Now, perhaps each new generation of patterns would have diminishing returns over the previous generation. My intuition is that this almost certainly true. But either an argument or evidence has to exist for it and I'm not aware of any.
  - ImPostingOnHN 3y ago
    > The thing is there's no reason why new patterns can't exist, created by the patterns of the HFTs, who could create new profit opportunities for other HFTs correct, exactly what I'm saying, any opportunities, including those derived from other opportunities being seized, would themselves be seized by such deep pockets and HFT firms > ...or day-traders. unfortunately I doubt it, due to the above
stouset 3y ago
> The assumption of technical analysis is that those with the deeper pockets move the market in certain ways and patterns If those with deeper pockets had reliably exploitable trading strategies, other teams with equally deep pockets would be exploiting them. You need to simultaneously believe that widely known and understood patterns exist which are profitable to exploit but also that nobody with large sums of money and a financial incentive to profit is interested in taking that easy money.

ImPostingOnHN 3y ago

> The assumption of technical analysis is that those with the deeper pockets move the market in certain ways and patterns and it's the job of the short-term speculator to anticipate those ways. if this were the case, it seems likely that others with deeper pockets than you, perhaps other high frequency traders, would rapidly exhaust those profit opportunities

pclmulqdq 3y ago
Which they do. Many kinds of HFT trading strategies actually look a lot like a more mathematically rigorous version of technical analysis. It is very likely that they take all of the alpha that TA traders used to get.
- vgatherps 3y ago
  HFTs generally consider shorter timescales (both in the feature set and the forward horizon) than human TA would lean on, and make tremendous use of microstructure information rather than outright price movements. Having said that, “let’s take difference to EMA” is pretty the one-size-fits-all solution, and there are no shortage of firms looking at minute to hour long trades to gobble up anything human TA practitioners would ever try to trade.
  - stouset 3y ago
    > HFTs generally consider shorter timescales than human TA would lean on This just further emphasizes the point that retail investors relying on TA are having their lunch eaten. HFTs are picking the minute opportunities because that's all that exists. If there were longer-term strategies that were reliably profitable, do you think they simply ignore them?
    - vgatherps 3y ago
      sub-minute opportunities are absolutely not all that exist, in many ways it’s the opposite. The hft opportunity space is extremely competitive, and much more zero sum than the mid/low frequency space. A relatively small set of players compete for the lions share of anything one might consider high frequency. The set of trades you compete for and the relevant information to generate forecasts is limited / similar across firms, and table-stakes on engineering side are very high. > If there were long term strategies that were reliably profitable, do you think they would simply ignore them? Yes? Mid frequency trading (say holding period of 5 minutes to ~1 hour) is a totally different class of quantitative trading, from the features you use to how you build portfolios (if at all) to how you execute on forecasts. At least one top-of-the-game hft firm (that already relied on forecasts instead of speed) got burned on their first attempt to enter mid frequency.
      - stouset 3y ago
        > At least one top-of-the-game hft firm (that already relied on forecasts instead of speed) got burned on their first attempt to enter mid frequency. Put differently: "A bunch of smart people who have proven to be able to reliably extract profits from microsecond trades tried their hand at exploiting patterns on longer timescales and were unable to. Even though I have less money, information, access to markets, and am just one person, I believe I can succeed where they failed."
        vgatherps 3y ago
        I don’t know why you think I’m saying TA works. The only thing I’ve said is that HFTs are by and large not responsible for trading away those inefficiencies
username332211 3y ago
The thing is there's no reason why new patterns can't exist, created by the patterns of the HFTs, who could create new profit opportunities for other HFTs or day-traders. Now, perhaps each new generation of patterns would have diminishing returns over the previous generation. My intuition is that this almost certainly true. But either an argument or evidence has to exist for it and I'm not aware of any.
- ImPostingOnHN 3y ago
  > The thing is there's no reason why new patterns can't exist, created by the patterns of the HFTs, who could create new profit opportunities for other HFTs correct, exactly what I'm saying, any opportunities, including those derived from other opportunities being seized, would themselves be seized by such deep pockets and HFT firms > ...or day-traders. unfortunately I doubt it, due to the above

stouset 3y ago

> The assumption of technical analysis is that those with the deeper pockets move the market in certain ways and patterns If those with deeper pockets had reliably exploitable trading strategies, other teams with equally deep pockets would be exploiting them. You need to simultaneously believe that widely known and understood patterns exist which are profitable to exploit but also that nobody with large sums of money and a financial incentive to profit is interested in taking that easy money.