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Walter:
I disagree. Ed is describing the basis for a mechanical money management
system like Optimal f or most other systems, while you are (equally
correctly) describing the human factor. I suppose discipline is the key.
If we are undisciplined, we should not fool ourselves into thinking a
mechanical trading system or mechanical money management system will
compensate for our shortcomings.
You do bring up an important point. If we design and test a system and then
develop a money management strategy around it, every change we make means we
are trading a whole new system and we need to go back to the drawing board.
I've done it myself; I struggle to develop a system, then I do my best to
screw it up with tinkering, rule exceptions and emotion, and wonder why the
rules just don't apply anymore.
Regards.
----- Original Message -----
From: Walter Lake <wlake@xxxxxxxxx>
To: Metastock bulletin board <metastock@xxxxxxxxxxxxx>
Sent: July 9, 1999 06:53
Subject: Optimal f
> Hi Glen
>
> Re Ed Winter's assumptions:
>
> "... The assumptions behind this are:
> - there is a reasonable expectation that the system you are using for
> trading can be repeated
> - the system you are using has statistically verifiable rules
> - the method of execution is mechanical
> - you want the maximum growth of the account regardless of the increased
> risk. ..."
>
> These assumptions appear to be logically correct but are simplistic and
are
> seriously flawed.
>
> The basic psychological process that undermines these assumptions is
> incremental drift caused by boredom, tinkering, improving, seminar
> attending, insight, etc.
>
> Even though Rick may have 5,000+ closed trades to analyze he would need
> detailed records to correlate the multiple trading system used over time
to
> produce these results.
>
> You might also want to check out the neuropsychological literature on
> unconscious biases which prevent mechanical execution. Here is a short
> sample:
>
>
http://www.sciencemag.org/cgi/content/full/275/5304/1293?ijkey=qvmuCiNjPcckE
>
> The Damasio's are serious investigators. There are lots of medline
> references at the end of the article. There are articles available at the
> various neuroscience sites for the anatomical sites that are involved in
the
> neural networks so that your own "individual" symptom list can be prepared
> from your trading diaries.
>
> It's always interesting to plot your own trading disabilities.
>
> Best regards
>
> Walter
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