Usually when we look at specific trading strategies, some trading strategies attempts to take advantage of price discrepancy. For example, like what we call arbitrage, you try to buy one shares in one market, and short another shares in another list in another place. So that’s called arbitrage.

And arbitrage, usually are based on certain information. Over time people would realize and people all will just act on it and the edge will disappear.
So that’s the reason why you will realize that for those hedge funds, those big, big money management firm, when they have strategies that are quantitative in nature is that they are edged, they realize they will disappear soon because everyone is always trying to find that ways of “so called” arbitraging the market from there. Statistical arbitrage and stuff like that.

And so those kinds of edge disappear very quickly. So that’s the reason why they have to keep on looking for new strategies, for new algorithms to use. Because if they stopped doing that, the previous one, the edge will disappear. And that’s how they will start to not have an edge anymore.

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Philip Teo

Founder & CEO at Traderwave Pte Ltd
Philip Teo is an entrepreneur, speaker and trading coach who specialises in the field of Technical Analysis of the financial markets. He is currently the Founder and CEO of Traderwave Pte Ltd, a financial technology company that offers a web charting application to global traders. He has conducted many trading seminars and appeared on national television before. He is also currently an official speaker and trainer with SGX Academy. Learn more about him at his Google+ Profile, LinkedIn Profile and Facebook Profile

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