fattyfatfat

http://fattyfatfat.com/2008/12/moving-average-crossover-theo...

The cost of a ES mini (SP500 mini future) trade is $2.40.

Stocks trade for half a penny to a penny per share with a minimum of $1.00 per transaction.

I think they require 20k to start a new account these days though.

IB has been by far my favorite brokerage

I've personally never used it. I just download raw pricing data then backtest it myself. You could learn how to do it on even yahoo data if you wanted (for day-over-day trading). Bloomberg is by far the best for intraday price information.

I still stand by my above claim that Tech Analysis (and especially LONG term trending) has no theoretical basis, except for the fact that everyone else believes in it.

Options Volatility and Pricing by S. Natenberg (sp) is a great theoretical primer for options, though typically a bit dense for people outside the industry. The writing style is brutal, but this book has probably made more millionaires than any single other book in history. Walk around the option exchange floors and every clerk has a copy, to this day.

and on having the "secret sauce" to beat the market. Read about Edward Thorpe. He's a badass. He wrote the book "beat the dealer" which was the bible on counting cards and beating vegas at blackjack.

Then he figured out how to price options (convertibles, really) and made a killing in his own hedge fund (Princeton Newport Associates, I believe).

He had the secret sauce, used it to make a killing instead of publishing it. YEARS later, black and scholes published the essentially SAME formula for price options and eventually won a nobel price for their work.

But Thorpe stuck to his guns and made his fortune. Merits to both sides, I suppose.

I still dabble with variations of it (made like 250 bucks last friday), but I'm now doing way more research and backtesting before I drop things into the market for real.

I did it for fun, to learn, to gamble, and hopefully get lucky. God knows I've spent money in worse ways before.

Regarding the theory that other players would jump in the market and cause the opportunity to go away: you're right, but they'd really have to parametrize the same strategy in the same way as you. thousands of people use moving averages already, but all parametrized differently so they produce buy and sell signals at different times.

There's certainly no ideal parametrization that is alawys profitable, as most research shows (and I tend to believe)

you're exactly right. its just a bunch of if then statements. I played with quite a few variations of a VERY simple, primitive strategy.

I'm the first to admit that that day's P&L was largely the product of luck. In fact, I had quite a bit of remorse after the fact and was thankful that the coin flipped my way that day.

Regarding predictive engines, you're definitely right as well. Most educated financial professionals don't believe tat you can predict future price movement with any degree of certainty, but there IS a fairly large following up that believes that price behavior is at least price reverting in the short term.

I got lucky, I basically flipped a coin and HAPPENED to do it on a day where the SP500 moved a LOT. moving averages do TERRIBLY in environments where the market doesn't trend hugely in one direction. I think I talked about that a bit later.

On that note though, I still work with this, though my approach has changed dramatically. Its certainly possible to structure a trading strategy to fit your risk profile.

Nobody can win every time, but you can design the strategy to provide losses you are comfortable with.

Regarding tweaking buy/sell algos to predict future movement though, there's plenty of literature on that on both sides, so I won't really argue with you.

If you're itnerested, I recommend reading about high frequency algorithmic trading. You can also read my similar blog posts about why I think technical analysis is absolute drivel and the potentical justification for running a moving average algo.