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Re: [amibroker] Re: 'Rule Based' versus 'Discretionary' trading...



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The problem with dicretionary trading is that everyone has bad cycles where things go wrong. A discretionary trader needs to have great discipline at all times, but expecially when things are going bad. When you are a rule based trader and you have throughly tested your rules, you can believe in your rules. This is much like my gambling in the casino. I know that mathematically, I have an edge on certain games. So even when things are going bad and I am losing, I know that in the long run, I will be ahead. I have math on my side plus now I have almost 12 years experience.
 
I am not saying that one type of trading is better than any other. It is just that some people are better suited for rules than discretionary trading.
 
Tom
----- Original Message -----
From: brian_z111
Sent: Wednesday, August 20, 2008 9:30 PM
Subject: [amibroker] Re: 'Rule Based' versus 'Discretionary' trading...

Hello Ed,

I would include that case under point a)

I agree that this is possible however that person wouldn't be a
Discretionary Trader.
We would have to invent a new class, say XTraders.

The problem here is that we won't be able to reach an agreement as to
what consitutes knowledge - even the experts (philosophers) can't
agree.

http://en.wikipedia.org/wiki/Epistemology

Without going that deep we could attempt to prove the claims of
Intuitive Traders by testing their trading performance in a
controlled environment.

This would be almost impossible to do because of the difficulty of
finding an 'experienced' intuitive trader who is also not tainted by
exposure to backtesting, trading rules (textbooks) i.e. they are not
both an experienced Intuitive Trader and an experienced Rules based
trader.

The ultimate test would be to submit (claimed/known) X types, who
have never seen a stock chart, or traded before, to a controlled
stock trading test.

I doubt if we have to go that far to disprove the idea that anyone is
making discretionary decisions when they trade.

To qualify they only need to be free to make a choice, say whether a
trend is up or upNOT (it could be any number or type of choices - it
doesn't really matter).

If they are FREE to choose then they can do so INDEPENDENTLY of any
other factor. If the choice is DEPENDENDENT on any other factor then
they are not making a free choice.

An INDEPENDENT choice is a random choice, therefore they will flip a
coin to decide if the trade is up or upNOt.

Any other method they used to make the choice would have dependency
wouldn't it (I am trying to think of an exception but I can't come up
with one so far)?

I guess that the people who like to argue about this type of thing
(the Philosophers) would say that an XTrader is not making a free
choice either since their choice is dependent on their special X
factor knowledge i.e. they are still bound by dependency - the have
merely used a different method to arrive at that point.

brian_z

--- In amibroker@xxxxxxxxxps.com, "Ed Hoopes" <reefbreak_sd@...>
wrote:
>
> Another possible irrational explanation is that some humans may have
> the ability to see the future.
>
> In competitive sports some players just seem to know what their
> opponents will do. Maybe the same is true of some successful
traders.
> They can't explain it rationally, but they "just know it"
>
> Reef
>
> PS
> Unfortunately, I don't have this trait.
>
>
> --- In amibroker@xxxxxxxxxps.com, "brian_z111" <brian_z111@> wrote:
> >
> > From the 2nd article:
> >
> > "Paul Taglia sees high-probability Window set-ups that the rest
of us
> > don't. I've seen him do this for nearly two years. He can't
explain
> > it...he simply says that he's looked at thousands and thousands
of
> > charts over his career and some charts simply look better to him
than
> > others. We once asked him to keep a journal to see if we could
> > systematize what he saw. It was a useless exercise. He sees it
but he
> > can't explain it."
> >
> >
> > According to Occams Law the simplest explanation is usually the
best.
> >
> > http://en.wikipedia.org/wiki/Simplicity
> >
> > Possible explanations, of Paul Taglia's discretionary style are:
> >
> > a) He can 'see', or sense, the future in the charts,
> > b) he has a set of rules that he learnt in the past (based on
> > experience) and they have become second nature - possibly he has
> > forgotten what they are or when he learnt them (or at least some
of
> > them)
> > c) he has a set of rules, and he knows that, but this is an
excellent
> > posture to take if his game plan is never to reveal them to anyone
> > d) he has a set of rules but has a playful nature OR likes to
take
> > the mickey out of his associates OR has a superiority complex and
> > disdains the idiots who surround him
> > e) he has an inferiority complex and needs the boost that comes
from
> > the adulation of others - this is an excellent strategy to
establish
> > mystique as a trader and achieve legendary status
> > f) it is a great way to market ones employment value in a
transient
> > workplace (its a resume that can't be questioned to any extent
either)
> > g) some combination of a-f
> > h) he has a set of rules (some conscious, some sub-conscious) but
he
> > can't be bothered explaining them (it is a form of energy
> > conservation - an alternavtive version of this is that he could
be a
> > very focused trader and has eliminated the non-essentials, like
> > defining his style OR chatting about his style.
> >
> > BTW irrationality is the common name for the shadow (I used the
> > symbolic name).
> >
> > There is no irrationality in maths, programming etc which is
probably
> > why I quite like programmers etc.
> >
> > Trading myths are born out of, and perpetuated by irrationality.
> >
> > brian_z
> >
> >
> >
> > --- In amibroker@xxxxxxxxxps.com, "wavemechanic" <timesarrow@>
> > wrote:
> > >
> > >
> >
http://www.tradingmarkets.com/.site/stocks/commentary/lcbattlep/082720
> > 04-39801.cfm
> > >
> > >
> >
http://www.tradingmarkets.com/.site/swingtrading/commentary/lcbattlep/
> > 09022004-39899.cfm
> > > ----- Original Message -----
> > > From: sidhartha70
> > > To: amibroker@xxxxxxxxxps.com
> > > Sent: Wednesday, August 20, 2008 10:52 AM
> > > Subject: [amibroker] Re: 'Rule Based' versus 'Discretionary'
> > trading...
> > >
> > >
> > > I think you're right Brian. We do all use rules of some sort.
> > >
> > > But I guess discretionary traders don't use 'hard and fast'
rules
> > and
> > > can't always define the same set of rules by which they
choose to
> > > define an entry or exit.
> > >
> > > For example, as we all know, something as simple as defining
a
> > trend
> > > programatically can be more problematic as you might at first
> > think.
> > > However, a good trader can see very quickly what state the
market
> > is
> > > in by looking at various time frame of chart.
> > >
> > > Likewise, divergences of various sorts can be easy to see
with the
> > > naked eye but difficult to code in their entirety.
> > >
> > > Like driving a car, or a golf swing, you learn the 'rules'
but
> > when
> > > you get really good you are no longer thinking rules... you've
> > > effectively let go of the rules and are just 'doing'...
> > >
> > > --- In amibroker@xxxxxxxxxps.com, "brian_z111" <brian_z111@>
> > wrote:
> > > >
> > > > Here is my definition:
> > > >
> > > > We are all rule based traders.
> > > >
> > > > Mechanical Traders are a specialist group who have
programmed
> > > > computers to autotrade their rules OR automatically
announce
> > their
> > > > rules via computer communications (audio, email, chart
prompts,
> > > > spoken text etc).
> > > >
> > > > I am prepared to continue the discussion with any seers,
> > inituitives
> > > > etc, who come forward, and adjust my definition to meet
> > anything new
> > > > that comes out of that.
> > > >
> > > > In advance I admit to the possibility of exceptions to the
rule.
> > > >
> > > > brian_z
> > > >
> > > >
> > > > --- In amibroker@xxxxxxxxxps.com, "brian_z111"
<brian_z111@>
> > wrote:
> > > > >
> > > > > >Descretionary traders make decisions that are based on
> > personal
> > > > > >knowledge and circumstances, perhaps using many factors
> > unknown to
> > > > > >themselves. Like which journal they read the night
before.
> > > > >
> > > > > This is the nub of the question for sure, and the point
that
> > I am
> > > > > investigating.
> > > > >
> > > > > I suspect that when they (self-nominated DT's) think they
are
> > > > making
> > > > > discretionary decisions they are in fact making rule
based
> > > > decisions.
> > > > >
> > > > > That is why I asked for specific examples
of 'discretionary'
> > > > decision
> > > > > making e.g. I haven't seen Bilbo's chart yet but I
consider
> > it
> > > > highly
> > > > > unlikely that the decision about whether a trend is in
place
> > is a
> > > > > discretionary decision - I can define a trend in several
> > different
> > > > > ways - all of them can readily be written as a rule (in
words
> > or
> > > > with
> > > > > code) - I don't care if the definitions are 'correct' or
not
> > as
> > > > long as
> > > > > the system that they are part of works i.e. my rules for
a
> > trend
> > > > depend
> > > > > on the context.
> > > > >
> > > > > As Dennis said, our rules might be difficult to program,
> > causing us
> > > > not
> > > > > to automate the trade, but mentally we are still running
the
> > rules
> > > > and
> > > > > if we are honest with ourselves we do know what the rules
are.
> > > > >
> > > > >
> > > > > >For a novice traders to try and mimic the techniques (of
> > > > Discretionary
> > > > > >Traders) without
> > > > > >having similar backgrounds merits caution.
> > > > >
> > > > > What I am suggesting is that, over time, the sub-
conscious
> > mind
> > > > will
> > > > > automate what was intially habitual conscious behaviour,
and
> > even
> > > > make
> > > > > some improvements on it, so that 'we' can skip the
conscious
> > part
> > > > for
> > > > > some 'tasks' e.g. driving the car becomes second nature.
> > > > >
> > > > > That won't happen for new traders, in a short time, so
they
> > do need
> > > > to
> > > > > persevere, be patient and not try to mimic people who
have
> > been
> > > > around
> > > > > for years.
> > > > >
> > > > > IMO formal (written) rules based
> > trading/backtesting/optimization
> > > > is
> > > > > the best place to start - it grinds the basic lessons in
very
> > well.
> > > > >
> > > > > If anyone can look at a chart, and without recourse to
any
> > rules,
> > > > know
> > > > > which way the price is going to move and trade
successfully
> > (long
> > > > > term) on that basis then that is something else
altogether.
> > > > >
> > > > > If it is at all possible to do that then it definitely
can't
> > be
> > > > taught.
> > > > >
> > > > > That is why I asked, "Anyone doing it?".
> > > > >
> > > > > It is just like >100%PA returns - anything is possible
but
> > once
> > > > someone
> > > > > confirms that they have done it then it moves from the
realm
> > of
> > > > > possibility into reality.
> > > > >
> > > > > In the meantime I will stick to my guns by saying
> > that "except for
> > > > > people who KNOW what the price is going to do everyone
else
> > is a
> > > > rule
> > > > > based trader and categorizing traders, as DT's or MT's,
is
> > > > arbitrary".
> > > > >
> > > > > brian_z
> > > > >
> > > >
> > >
> > >
> > >
> > > ------------------------------------
> > >
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> > 8/20/2008 8:12 AM
> > >
> >
>

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