Edge Erosion

I would categorize edge erosion into these 2 categories:

1. more people doing the same thing 

2. average skill level curve accelerating

First one is about how many more htb short sellers (or their liquidity to be more precise) can lower liquidity ecosystem like sc successfully sustain. It's a typical problem in game theory (El Farol bar problem). People mostly talk about this point when it comes to edge erosion so i would like to focus more on the second one.

I noticed on social media new people to the game are more skilled, posts are higher quality, impactful actionable info is shared, tons of new software popped up. In pre-covid days this wasn't the case at all, it was all recycled 0 ev platitudes, not the highest quality chat rooms, false theories, vague information, no software whatsoever. There were never any major changes in history as in recent times and because of that average skill remained almost constant for all these years.

This already happened to online poker. Status quo for many years and then coaching sites, rise in online poker popularity, math kids, software happened and today if you want to beat higher stakes you need to spend hours in solvers every day and average skill of a player is multiple times higher of what it was 15 years ago, games are much tougher and many players who were beating the game 5 years ago are not here anymore.

We still have on our sides things like dunning-kruger effect, fundamental edge of toxic financing, the fact that sc is larger ecosystem than online poker, high skilled traders hiding in the shadows, social media trading scammers with effective marketing, math kids haven't discovered sc yet and thanks to that i wouldn't say future of the sc ecosystem is as doomed as it was with poker but it might be not the brightest future either.

Thinking another new software or that +ev information shared won't have an impact is same as saying if temperature rises by 1.5°C it's nothing as 1.5 is such low meaningless number, but in reality it might have big impact on the overall ecosystem of our planet.

Losing traders not losing as quickly as before or breakeven traders doing correct thing more frequently than before has major impact on overall ecosystem in my opinion also it's significantly worse that everybody will get just a little better than few people who will get better by a lot. People underestimate power of large numbers and don't look at participants as clustered combined liquidity. Thinking in absolutes or extremes is not a way to go either. I would quantify it like this:

clustered combined liquidity * frequency of doing correct action

The more participants will be doing fewer stupid things the more negative effect it will have on the ecosystem.

And for all former online poker players who have been through this already, let's at least laugh at the image below. Everything is same, software, people's arguments against edge erosion, easier access to +ev information, skill curve acceleration.

My personal prediction is that with current trend the sc game will be probably getting harder, the edge won't erode fully because of toxic financing and larger ecosystem compared to online poker but also why to play with fire and risk potentially worse scenario or accelerate the current trend.

Edge Erosion FAQ:

Trading is about psychology and being able to execute system, people tilt.

People tilting, making mistakes or not being able to follow a system is insignificant part of the edge. This argument has way more weight in online poker than it will ever have in more indirect trading. Yet it didn't have any noticeable impact on saving online poker.

It's normal to have break even stretches and certain variance according to historical data.
We don't even have this data available since it's such recent event. Will we suffer larger drawdowns? I don't know. Let's look at the data in 10 years. Personally i will try not to add fuel to the fire. 

People are (and always will be) lazy and won't work hard, we are safe.

All this software makes it much easier for other people. With average skill rising you will have to work much harder to keep up than you used to. I don't agree with people not working hard enough either and i wouldn't underestimate them but that's for another blog post.

Just adapt.
How many social media known people are not profitable anymore, gone, have large break even stretches in their pnl, switched to other instruments or retired? Creating nemesis strategy sounds great in theory, but it's not that easy for most people. There is a danger of recency bias with adapting too soon after 8 losses in a row therefore you need sufficient sample size to adapt which will result in choppier pnl. Stable edge is better than adapting every 3 months.