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Tom,
Having traded lots of 'systems' mechanically, I can say the same is
also true of 'solely rule based' trading. When you've just see your
biggest drawdown ever, and your leaking money all over the place,
volatility of returns is higher than in historical out of sample
backtest and you are getting stopped out all over the place... you
need just as much dicipline as a discretionary trader. You may have
the maths or backtests to make you feel slightly better, as a
discretionary trader has his hard won successful track record, but you
know that systems, ALL systems, eventually fail...
Losing money is losing money in my experience. No matter what your
technique, it always shakes your confidence and makes you search your
soul.
--- In amibroker@xxxxxxxxxxxxxxx, <professor@xxx> wrote:
>
> 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
> To: amibroker@xxxxxxxxxxxxxxx
> 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@xxxxxxxxxxxxxxx, "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@xxxxxxxxxxxxxxx, "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@xxxxxxxxxxxxxxx, "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@xxxxxxxxxxxxxxx
> > > > 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@xxxxxxxxxxxxxxx, "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@xxxxxxxxxxxxxxx, "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
> > > > > >
> > > > >
> > > >
> > > >
> > > >
> > > > ------------------------------------
> > > >
> > > > Please note that this group is for discussion between users
> only.
> > > >
> > > > To get support from AmiBroker please send an e-mail directly
> to
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> > > >
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> > > 8/20/2008 8:12 AM
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> >
>
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