>> I have never actually met anybody making money trading who wasn't doing one of three things 1) trend trading, 2) stat arb, or 3) leaning, as with a market-maker. Leaning, like options replicating, is really just a relative of trend trading, where you pick people off with asymmetric friction. <<I'm trying to make it as a daytrader after 15 years in finance, and I found your note very, very interesting. Could you tell me a bit more about the three systems you mention at the end?Trend trading -- sounds like the basic strategy of your "King", investing on the assumption that "Everything was trendy, everything was correlated."Stat arb -- is this pairs trading? Matched trades to offset relative strength we assume will revert to a mean?Leaning -- not sure what this is -- how do you pick people off with asymmetric friction?Thanks!

MP, perhaps trend trading is really 'spread trading', in that one expects a correlation to imply that if X goes up, so must Y: their spread is stationary, or cointegrated Thus buying Y due to X rising is due to expectations for mean reversion in the spread, rather than the 'trend' in X (since no expectation is made that X will rise, only that Y will catch up). Thus this is just Stat Arb. E

From one of your links to leaning:>> Most of market-making in stocks is based on a process called "leaning." Suppose, in a central electronic limit order book, there are 400 bid at 29 even. And no other bids or offers. If you have lower friction than whoever placed that bid, you can front-run it by bidding for 100 at 29 1/8. Then, once you are filled, you can offer it out at 29 1/4. Suppose orders to buy and sell arrive in random lots of 100. The chances that the entire 400 gets taken out at 29, before someone takes your 100 at 29 1/4 is 1/16.<<Thanks very much for this.