Edges Disappear

Sean McLaughlin
April 16, 2022

I read a book recently that got into the fact that any and all edges in trading, no matter how robust, degrade over time.

The author listed a variety of reasons, but the biggest one that caught my attention is that if the edge is so good, then the simple act of making a bunch of money exploiting this edge will eventually get discovered. 

This is an incestuous business where people talk. Brokers talk to their clients. Clients talk to their industry contacts. Word gets around about so and so making all kinds of money.  And then copycat traders act and move in to also take advantage of said edge. And this crowding in will work to eventually minimize or trivialize the edge.

Then it’s back to square one. 

And this process is in perpetual motion.

This is on my mind this week as I explore some new hair-brained ideas for making money. You see, my brain is always searching for new schemes to strategize. I’m always thinking about ways to systematically approach options trading.

The trades we do with All Star Options are tactical, usually borne out of specific technical setups that we’re taking advantage of. This isn’t systematic, it’s discretionary. And that’s fine. It’s a good piece of the overall puzzle when it comes to portfolio management and diversification.

But I’m always on the hunt for something more systematic and repeatable. Something I can do day in and day out to complement my portfolio. Am I a trading junky? Possibly. But I like to think it's more about continually looking for new edges and staying one step ahead of the copycats.

The reality is, it's probably a little bit of both. And that’s ok. If I’m not learning, experimenting, and constantly iterating, then I’m probably falling behind. And it's the variety of ideas and tinkering that keeps this gig perpetually interesting and me interested.

What keeps you engaged? I’d love to hear about it.

~ @chicagosean

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