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Among other comments, intersting as always, Steve Karnish wrote:
> Always concentrate on what has happened during the last two years
> and be flexible and inventive enough to monitor and understand how
> market dynamics are changing.
I am not going to ask you to defend this, because I'm not going to attack
it,
even though it is counter to my own dogma. My practices reflect my own
limitations: I can see only three ways to figure out how changing market
conditions will affect your system: extensive testing that covers long
periods
of data; decades of actual trading, using a variety of methods in many
different market conditions, or taking an ugly bath in red ink. Given a
choice between method one and method three, I'll test over the
longest period I can.
I do know one trader who periodically changes his markets and techniques,
going wherever the profits look best to him. When we met, he was fading
the premium on the S&P, on 3-minute bars. A few months later, he had
gone to volatility breakouts on one of the overseas markets, having
optimized
his breakout threshold over a period that seemed to me very short. He once
said that years ago he had spent 18 months in Paris just fading the RSI and
almost could do no wrong. This flexible approach works for him, and
has for something like 20 years. Not sure it would work for me.
I'm also not sure it would work for most people here, and this is where
I have a problem with one of our more interesting and productive
participants.
He may have the skill to change his methods when the market changes,
before his account goes under. And if not, that's his problem. Nobody
in this business wastes many tears when somebody gets carried out.
But I do worry that his obvious intelligence and creativity will inspire
others to follow his lead, even though they lack the skill and experience
to get out when things go wrong. That's their problem, too, of course,
but somehow it leaves me a little queasy.
Anyway, all this leaves me wondering, how do less experienced traders
understand their systems well enough to recognize trouble if not by
seeing how it would have performed in different historical markets?
Any thoughts, Steve?
Owen Davies
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