Trading Is An Open System = Increasing Complexity Over Time

 

I’ve seen posts online stating that trading shouldn’t be difficult because all it involves is buying and selling and the rules are pretty similar to when it originally started.

That mindset is wrong though. This first thing missed is trading isn’t just about buying or selling, but buying or selling at the RIGHT times to maximize profits and avoid losses.

The next oversight is not realizing the market is an “open system”, meaning its overall behavior can and will change over time as new participants enter the market with different buy and sell strategies. Over time, as market participants acquire more knowledge and skills, the market will also change to reflect that.

An example of this would be the Olympics over time. If you look at the sporting events of Olympics at the turn of the century versus now, the skill levels that qualified for medals in past history wouldn’t even pass the qualifying rounds for the same sports today. Even though the rules of the past haven’t changed much compared with current rules, the skills and strategies of the participants have.

Current markets include a mix of humans, computer programs, and artificial intelligence into the mix attempting to execute the best buy and sell strategies. This means to succeed in trading over the long term, one must be capable of adapting to market behavior changes over time.

Open systems will change and adapt to new information received. This means that a “market edge”, an advantage one has over others in the market can only work if the information that creates that edge isn’t known by all members in the system. Otherwise, if the information becomes widespread, the market will adapt and the edge will be neutralized. This is why many books and courses promoting sure fire trading plans don’t work- the information is already known by the market.