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. [Read more…]