Subjective element added to a systematic trading process

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Post by rs » Sat Apr 26, 2003 4:31 am

Hi all,

I trade on a long-term trend following basis in the futures markets but I do NOT trade a completely mechanical system. I do trade very systematically though. For example, there are several base criteria that must be met before I trade. These could be codified into a system. Then I use pattern recognition to set a stop and make the final decision of whether to enter a a trade. I also only risk the same amount of capital per trade so every trade is the same.

This is probably because I do not have any significant programming experience as 100% mechanical trading does appeal to me.

My question is, do you feel that any subjective element added to a systematic trading process can only worsen the results? Is it the case that although I feel that I can outperform a purely systematic approach simply a human misjudgement?

I would be very interested to hear people's opinions on this.



edward kim
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Post by edward kim » Sat Apr 26, 2003 5:07 am

Hi RS,

I would say that the performance of that subjective element is .. well, subjective.

Let's say the subjective element is people talking in restaurants about how much money they were making on every stock that had a 4-letter symbol (this was my experience in February 2001 by the way.) So what is your perception of that element? Are we near a top? Is there still more fuel being added to the fire?

I would say that your state of mind at that time is probably going to affect your perception of that element. If you have an extremely stable state of mind, you might benefit from such a variable.

Incidentally, I called up all my friends and told them that these conversations were going on in every restaurant I went to that month, and everyone I knew started dumping in March - right at the top. They definitely have a very strong profile, much stronger than mine. I was the one with the info, yet I was the only one still long in April.


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