Blog / Market Participation Schema
Market Participation Schema
A Market Participation Process Model.
In order to better understand our participation in the market we created a Market Participation Schema, that is presented on the following diagram:
What is our objective?
Our objective is to reach consistently higher and higher cumulative profit as a result of our market participation.
Can we control the market?
No, we can Not control the market, but we can control our market participation and with it the possible profit levels we can reach.
At the same time our impact on the market is dependent on our capital, that we are using within a specific market, and most of the time this impact is definitely negligible if we play the big indices as individual participants.
In our view this schema could be applied, no matter that we are talking about completely automated systems or intuitive trading.
Obviously in the second case the market model, the trading model and the decision mechanism is in the trader’s head, whereas in case of a completely automated system it is implemented by computer algorithms.
(Actually in case of intuitive trading there is another feedback loop, as the Profit(t) function might impact, distort the market model, trading model and decision mechanism within the trader. That is why some suggest to trade like a robot, to minimize the negative impacts from outside this closed loop.
Very rarely automated systems might also change their behavior depending on the Profit(t) function, to optimize long-term results, for example by changing positions size as a function of historical profit function. Because of lover importance, we showed this with dashed line.)
But these are only two extreme approaches to play the market and unlimited number of other hybrid approach could be successfully implemented, when both human and machine interact to generate the final piece of the participation, the trading output.
In trading literature there are endless number of market models, trading models, decision mechanisms, data acquisition mechanisms, data preparation / preprocessing mechanisms
We do not intend to cover all possibilities of the available systems.
In our future blog entries we will focus mostly on universally applicable information and let the readers think and work on the details that might apply best to their own market participation using their selected time-frame, selected asset class / classes and selected trading style.
Special focus will be on how to increase further the success level of predictionwizard users in this market participation process.
We will have less focus on particularities and information that might be of interest only to very limited number of predictionwizard users.
The difficulty lies in the fact that this process is not a deterministic process, so no simple transfer function could be created.
We can’t make valid conclusions in a probabilistic process after one or two market participation, or trades.
Having optimal process settings today still might not be enough long – term, as the process parameters also change in time.
But after hundreds of participation we should be able to identify some of the current process quality parameters.
This might seem complicated at first but it will not, as we try to simplify our explanation and try to summarize or make conclusion after more detailed descriptions.
You can consider this as a kind of list, that is needed to be able to successfully participate in the market.
As one example: You need Real-Time data. Obviously you may be able to put in trades without real time data, but that will not be optimal long term.
If you are a Day-Trader or scalper and the Real-Time data stops flowing you will definitely feel the importance of that item in this process. You can make some interesting experience just by closing your eyes, or shutting off your monitor(s) for 5 minutes and think of market participation.