All profitable automated trading strategies that I'm aware of target a specific inefficiency in the market. What is the inefficiency here? If you can't articulate the inefficiency, it's probably best not to employ the strategy.
Interesting, could you describe one inefficiency that was exploited in the past? I could imagine buying/selling due to spreads between exchanges but is there another not as obvious example?
I can describe one inefficiency from sports gambling. There is a famous NBA Gambler named Haralabos Voulgaris. He realized that the points total prediction for a game, let's say 100 points scored for Team A, was merely sliced in half to represent the half-time score. However, the pace of the first half is markedly different from the pace of the second half, thus points are scored at an uneven clip. He exploited that inefficiency for a while to great success.
Like sports gambling, a lot of the financial products we trade are obviously built by humans using rules, and arbitraging the intrinsic rules and regulations around said products. Think about Forex trading where you convert currency into currency. One of the key strategies is to find and identify brief negative cycles, for example, in the hope that converting US Dollars to Euros to Yen back to US Dollars leaves you with more dollars than you started out with.
