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Too much reading ...

Posted: Mon Jan 05, 2004 7:47 am
by verec
I've just read the entire thread at viewtopic.php?t=564 which deals with portfolio selection ... and I came out scared!

"God! I hadn't seen Portfolio selection as such a black-art not amenable to pure logic" did I think, close to despair.

But then, the very same happened to me when I didn't understand "how on earth can you manage the capital requirements for long term trading?" (which I do now! :) )

The point I want to make is that being too open to outside input can really wreak-havoc with your goals, direction or even personality, and a bit of rationalizing/putting things in perspective is needed...

That's the word: "Putting things in perspective". How do you all handle this? I've learnt, a while ago, to stop listening to news/media. Then I relied on books, trusting my own "common sense" to sort out between what makes sense (Schwager, VanTharp, Turtle) and what dooesn't (no example given: I only want to be positive 8) ...)

But then, how to you test your own common-sense?
On one hand, I'm perfectly happy admitting that I'm the worst idiot ever seen if this makes me money trading ... but being stupid doesn't look like such a good road to follow on the road towards trading success?

Do you handle things by staying "blind" to the outside world, just relying on your own "good-star"/luck of owning a good brain? How do you keep confidence in yourself? Why should you be confident in yourself? Is this a rational decision (ie: "in the past, by relying only on my common sense, I made more sound decisions than unwise ones", but then how to you factor luck out?) or some other decisional process?

Being unemotional seems a good thing from a rational perspective. Is that the only thing that is required? Or in other words, does being rational and cold-blooded the be-all end-all of successful trading?

And am I asking too many questions? :?

Posted: Mon Jan 05, 2004 8:37 am
by Bondtrader
An often-used method of tuning out the noise of the world, is to become a totally mechanical trader. Pick a system, select a robobroker, say the word "go", and then forget about it. Deliver your statements, unopened, to your accountant so she can calculate your income tax bill.

There was a thought provoking note about this on the TR email list, which I mentioned here a while ago (viewtopic.php?p=1308&highlight=astonished#1308). For this discussion, the relevant part is
I think you'll discover that "Mechanical" systems research, in fact includes a LOT of subjective human judgement.

What constitutes "great" test results? -- calls for human judgement

Do I have enough trades in backtesting to feel confident about future results? -- calls for human judgement

Is it better to trade the original system idea without filters, taking more trades but having a smaller average profit per trade, or should I apply filters to reduce the #trades and increase the average profit per trade? -- calls for human judgement

What criteria should I use when deciding whether a certain market should be included or excluded in my portfolio? -- human judgement

When trading several systems at once, should they have as many markets in common as possible? Or should their portfolios have very little overlap? -- human judgement

When trading several systems at once, should each system get an equal piece of the account equity? Is it better to let system A trade 50% of equity, system B trade 30%, and system C trade 20%? -- human judgement

If I test Aberration by itself and find that I'm comfortable risking 2% of equity per trade, then if I SIMULTEST Aberration with Not Exactly and find that I can increase risk to 4.0% of equity without increasing drawdowns (because the system-pair has a smoother equity curve with less drawdowns than either system alone), DO I HAVE THE GUTS to take much bigger risk per trade? -- human judgement

And so forth.

Maybe you'll find that systems research is not so much a search for answers, but rather a search for more insightful questions.

Best wishes in your trading and your research,
-Mark Johnson

Posted: Tue Jan 06, 2004 6:23 am
by verec
Thanks for the pointers!

But does this all mean that you must reach "beyond the doubt" phase? And that you must know when to follow the rules and when to break them? (a recurring item in MW), but then again, not even back-testing, not even _ACTUAL_ results are good enough to prove that your system WILL (continue to) work...

So you MUST have FAITH (to follow your system), and NOT HAVE FAITH when it underperforms ... but deciding that your System is just encountering a bad turn but is otherwise sound, or that you simply forgot to deal with case X, Y, & Z might be easier said than done? No?

I can _feel_ one side of myself being scared at running a system down to ruin because of blind faith in it. I can also see myself analysing bad trade after bad trade what is going on, and why that system that looked so great in simulation is now underperforming.

But does this all mean that, apart from traders who love the stress and the emotions, a happy trader is a retired trader?

Posted: Tue Jan 06, 2004 9:15 am
by Forum Mgmnt
There's a reason that most people lose money when trading, and most people don't end up trading successfully even when they have a good trading system.

No one said it would be easy to make millions :wink:

It seems you are now starting to see the real work of a trader, and why who you are is more important than the rules to your system.

- Forum Mgmnt

Posted: Tue Jan 06, 2004 9:49 am
by verec
Forum Mgmnt wrote:No one said it would be easy to make millions :wink:
One of my pet peeves :x the opposite of "simple" is "complex", the opposite of "easy" is "difficult".

I see trading as "simple" (just follow the rules) and "difficult" (can you follow the rules?) as opposed to, for example computer science which is "complex" but "easy".
Forum Mgmnt wrote:It seems you are now starting to see the real work of a trader, and why who you are is more important than the rules to your system.

- Forum Mgmnt

Funny (NOT!). I thought that abandonning the trading to an automated system, I could forget about finding out who I really was, and thus short-cutting finding the right questions. It seems that I embarked on a far longer journey than I anticipated at first...
Computers are useless: they only provide answers!
-- Pablo Picasso
Thanks, c.f..

Another related issue ...

Posted: Tue Jan 06, 2004 10:15 am
by verec
Someting I learnt the hard way:

You can't hope paying your bills by trading, unless you are _already_ paying your bills by trading.

Switching career in the midlle of your life might look good on your CV once you have succeeded, but until then, keeping whatever day job one has is probably the most safe route, because you don't want to have to rely on making a profit this month just to cover the bills. This proved to be my most catastrophic decision ever :shock: (But I'm recovering :lol: )

But again, this illustrates the point I started the thread with: At which point is one's common-sense flawed enough that you should stop relying on it? Why didn't I listen to my wife's intuition that I was going belly-up? Just in the name of logic? (which proved wrong!) But then her intuitions are not mine!

Should I hire her full time? :D

Posted: Tue Jan 06, 2004 11:50 am
by Forum Mgmnt
A lot of mechanical trader's seem to go through a process of:

First, discovering systematic trading and thinking, wow, you sure can make a lot of money and this seems easy.

Then, sooner or later, depending on the markets and how successful they are initially, they hit a major drawdown and start to stray from the "easy" system rules, or lose faith in their system or mechanical trading in genera.

This is the point that divides the road between success and failure. Most people either give up, or blindly keep going without attempting to learn anything from their mistakes (overtrading being by far the most common problem).

Those who succeed somehow manage to keep a steeled determination to continue on, learning from their mistakes but not giving up.

People don't think anything of spending years and many tens of thousands of dollars getting an education to learn another profession, but somehow think trading is really easy.

Don't lose heart, you are in the right place. If you really want to trade successfully, you will be able to do so. Giving up or not being humble enough to look at your mistakes honestly are what brings defeat. So keep your head up; your pride down; and your ears, eyes, and mind open.

- Forum Mgmnt

Posted: Tue Jan 06, 2004 12:30 pm
by verec
Thanks, c.f.. Your encouragements are most welcome.

Who are the players ?

Posted: Thu Jan 08, 2004 9:24 pm
by kalitka
Who are the players in the Future Markets nowadays ? I know there is official statistics on large speculators and hedgers, but that seems skewed, as a speculator would report himself as a hedger etc. I want to have a better sense of who is on the other side of my trades. In this minus sum game what percentage of all contracts traded are by big speculators, hedgers, pension funds, institutions, retail traders, amateurs, or even Central Banks (as in the latest dollar buying by Japan) ? I keep hearing from my friends working for big institutions that those are increasingly shifting from market making to speculating. They would hire cream of Yale and Princeton, provide them with all the software and data in the world for their trading research. Add to that their immense financial power and I'm becoming leery entering the competition. Is there always sufficient supply of newbies (to which ranks I feel I now belong :cry:) to warrant profits to smarter participants ? I need some encouragement here :? .

Posted: Fri Jan 09, 2004 3:26 am
by verec
Your "competition" being better equipped than you are w.r.t technolgy & data access is probably true, but they are "only" human, as you are, and no silicon based technology allows, yet, to fight/benefit from your own fear-greed-hope.

In the real world, people are not as logic as "being right" in school would have led you to believe. The world is composed of sub-par performers gathered in inefficient corporations where the individual manager has more say, and (often dumb) effect to the bottom-line than any "corporate policy" would dare to recognize.

The 21st century is the century of Mr Mediocre, and that is a huge success! Mr Mediocre heads states and corporations alike, with close to no regard for his own responsibility or accountability.

By rising above Mr Mediocre, no matter how strongly they believe they can skew the rules in their favor, you can beat them with tools they don't even know the meaning of: honesty, integrity, accountability, responsibility and discipline.

Let all those guys run after the "easy money" that some kind of "unique gift" allowed them to be privy to. You weren't gifted? And so what? You can still work hard!

There's a French saying which translated gives approximately:
"It is not necessary to hope in order to start
neither is it necessary to succeed in order to carry on".

Best Of Hard Work! 8)

Posted: Fri Jan 09, 2004 4:44 am
by Bernd

Posted: Fri Jan 09, 2004 4:56 am
by verec
... and "The Virtue of Selfishness" and "FountainHead" and "Capitalism, the Unknown Ideal" ...

That said, I have some room for disagreeing with Ayn Rand: the "looters" being evil do not automagically transform the non looters into super-men, nor a world entirely filled with super-men would be interesting or comfortably liveable within ...

But the most sad part of what I described in the post above, about Mr Mediocre, is that I talk from _actual_ experience in the corporate world (I'm a computer contractor: one of those guys that employees sneer at -- contractors make too much money -- and management consider as "disposable", even though we hold the know how of their products!)

But if you can keep hope in yourself, and understand that the only person you're ever likely to succeed changing is: yourself, then all the power to you and to your success.

Posted: Fri Jan 09, 2004 7:41 am
by Forum Mgmnt
Keep in mind that those geniuses at Yale, Princeton, and Harvard are just now getting around to the idea that the market might not be composed of rational decision makers.

I've got nothing against those schools per se, my best friend went to Harvard, but they are populated by a lot of people who learned to follow the rules set out by others in order to succeed in school. Following the rules of society and conventional accepted wisdom is NOT the way to succeed in trading.

A little Apple Computer philosophy works much better: "Think Different"

- Forum Mgmnt

Posted: Fri Jan 09, 2004 8:25 am
by damian
verec wrote: The 21st century is the century of Mr Mediocre, and that is a huge success!
shhhhh! I am quite comfortable thank you. Please don't bring attention to what I thought was my little secret. Image If I stay quite, I may get away with it a little longer.

verec, in the meantime, try not to vex over the topic too much, it will make your head hurt. I have read your things and looked at your website. You seem a smart fellow, smarter than I. Be happy, always try and improve and in the nicest most easy going way possible, bugger everyone else and who/what/where/why they are :D

(it was nice to see the OSX screenshots on your website. Good luck with the software).

Posted: Fri Jan 09, 2004 8:58 am
by William
Well, my best friend is in Yale's business school - he tried trading for about 6 months and blew up. He had great picks but he usually got way too aggressive and lost it all. So, I know plenty of smart people, who can't handle the emotions of trading. Or smart people who hate to admit that they are wrong and stick with the losers. When "Genius Failed" illustrates what happens when you have too much confidence that you have a perfect model and throw it into an imperfect world - you almost take down the entire financial world.

Heuristic biases of man helps even the playing field and create oppurtunity. Also, i wonder how well complex works vs. simple. The Turtle system's brilliance was its simplicity and it worked out ok. :)

Posted: Fri Jan 09, 2004 9:23 am
by verec
William wrote:Well, my best friend is in Yale's business school - he tried trading for about 6 months and blew up.
A somewhat caustic remark: you don't need to come out of Yale to blow up; look at me :oops:

Just to point out that if arrogance is not a virtue, humility may help but is definitely not the end of the story, unfortunately :?

Posted: Fri Jan 09, 2004 10:07 am
by William
humility may help but is definitely not the end of the story, unfortunately
Well, i would say fortunately, it takes a lot of things to be successful in trading. A list of requirements that don't come in the same goodies bag with smarts when the great Maker above was dishing it out. :) The more intangible skills necessary the harder it will be to do and the less who will do it, nullifying our concern about smart people owning the world in 3 weeks. If all it took to be good in trading, were the ability to read a book and memorize it then we would have a problem.

Posted: Fri Jan 09, 2004 10:22 am
by damian
William wrote: The Turtle system's brilliance was its simplicity and it worked out ok. :)
Hi William,

I actually don't think the turtle rules are all that simple. They are not complex relative to some concepts of science which are utilised in trading systems (DSP and what have you). Entry and exit in basic form are chapter 1 of trend following, highest high...lowest low etc. But, the system is not so simple. These comments are not meant as a detraction of the turtle system nor as arguments against your post. Just my opinion.

What I think is that the turtle system is clean and quite clear. The average man can easily grasp the method. This to me does not make it simple. It actually is/was quite a clever approach to making money from a trend whilst staying alive in a diversified portfolio environment.

Again, not a critic of your post, just chatter.

Posted: Fri Jan 09, 2004 10:23 am
by verec
William wrote:If all it took to be good in trading, were the ability to read a book and memorize it then we would have a problem.
That sounds true ... but what are we doing on this forum, except trying to help each other become better traders?

Does this mean that we're all guilty of some kind of elitism in that it is OK to share with our Trader's Roundtable Fellows, but shhhh, don't let the word out, this is a zero sum game, remember? The more the people understand this, the less likely we are to profit!

Or is the answer even more disheartening ... Real Traders just do it, and don't waste any time, in any forum, and those who talk ... are those who can't do ?

Maybe there's a balance ...

Posted: Fri Jan 09, 2004 11:03 am
by William

You are correct, simplicity is perhaps not the correct word. The rules seem a lot easier to create 20+ years later and having read them at least 10xs over a span of a few months. :) Its genius is its completeness, complex principles condensed into a executable rules. I guess, to perhaps state it slightly better, their brilliance was to condense the complex to the deceptively simple. (better?)

In terms of this forum, some things can be learned, obviously good books have a lot to say as well as many of the posters here. For me, i have learned an immense amount of material in the past 6 months, stuff i didnt even know existed let alone thought to ask myself. So we are in part standing on the shoulders of giants. Having the turtle rules available i think has helped a lot of people see what a complete and successful system looks and feels like. So all of that knowledge is useful to build your system. But then, when it comes to trading, that goes out the window, then its emotions, fear, doubt, greed. If you read a few of the posts in "Mistakes i Have Made a Few", none of that had to do with knowledge in a book, it had to do with dealing with our emotional weaknesses in real time.

Life is uncertainty. If i knew on January 15th my system would hit its drawdown limit of 32% and rally up, then there would be nothing to worry about and hardly any emotions. However, since i dont know that, i can spend the next 6 days freaking out and having my mind play tricks on me and cause me to freak out and dump, 2 minutes or 5 days too early. So i think how we deal with life's uncertainties and all of the emotions that come with it, seperates the winners from the losers.

All real traders have to learn and start somewhere and sometime. Real traders go through a process of learning what is necessary, processing it, putting in the right place and then they make money from it. We all search for the holy grail, realize that it exists within (Tharp) and then move on.

Two reasons i feel people post: 1. Like the community feel and the chance to bounce ideas back and forth. 2. Want to learn, from others who are still learning but are farther ahead on the curve. What you are learning here is helpful, you'll need it to be sucessful, i think, but i agree, as you become more successful, you're less likely interested to post all of the time. For me, i may spend two years posting, figuring out the ideas, asking questions, learning. After having been there done that for a period, perhaps a person moves on.

However, i am still very much a learning system trader, so perhaps i have it all very wrong. I am going from discretionary to system trader so i have made my share of mistakes, believe you me :lol: