Quote Originally Posted by adam ali View Post
Billy,

Is it the case - now that market-making has now effectively been taking off the "floor" and dispersed widely - it's difficult to truly know how MM is done today? I realize that if your pivot system works, it effectively means you DO know how MMs work, but it's interesting (at least to me) that's it's a guess and not a for sure. Or is something else coming into play that makes confirming how MM works difficult?
Adam,

MM is done today with HFT and algorithms programs. It is turning more and more probabilistic and quantitative in nature. The very stable probabilistic results of the pivots methodology comfort me in my "best guess" that they are still at the chore of the market makers' programs. The best proof or confirmation of the guess is the backtesting done by Pascal which gave a zero % long term return from the pivot methodology when used independently of any market direction bias. In other words, when blindly selling and buying (reversing) at each 3:1 reward-risk long or short setups, on average in the long term, you will not lose nor gain anything (except costs and commissions).
Once you introduce a performing probabilistic market direction model like the 20 DMF, the same 3:1 reward-risk setups entries at the model signals suddenly provide exceptional returns and reduces the risk once you start holding the position for the number of days until the next signal change or stop hit.
Billy

Billy