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Bob:
Thanks for the clarification of your thoughts and comments. Reading this post, I
doubt we disagree on much. The skills you speak of below I consider to be a part
of a good trader's set of trading tools. A well-schooled trader with talent can
still make a great living with little or no technology--Honest. People make a
living trading daily charts that they draw by hand and update out of the library
newspaper. I know a few of them here in the Chicago area and they are wise old
folks that have been great resources for me. They wouldn't touch a computer
for...well, anything.
But there are plenty of people that stand, successfully, somewhere in the middle
ground: Traders that have good trading skills and have taken the time to
integrate technology to do tasks for them and make their trading routines
easier. And I think what many people call 'systems' are simply mechanized
trading routines, which is what I was trying to paraphrase Mark Brown on
earlier.
So I think technology is fine and incorporating it into a trading routine is
great, too, where applicable. Some people are going to fall further down the
scale toward less technology and some are going to be 'systems intense,' but in
my opinion, the systems people that will make money and be successful long-term,
whether they are willing to admit or not, have not only good coding skills, but
also have good trading skills.
Mark Brown talked about 'one hit wonders' at one point and someone said that if
someone was profitable after twelve months, they'd consider that success and
that person would probably be around...I'll give you a veiled description of
what I would call a one hit wonder:
A long time ago, in a commodity pool far away, I managed some offshore money,
along with some other traders. At the end of the year, I was asked to do an
analysis and presentation for the main investors in the pool, and part of this
presentation involved looking at profits as a percentage of each commodity,
across the pool and across the manager. Now one of the commodities that had been
very profitable was OJ. And OJ was very very good to the pool. So I looked at
the breakdown by manager. Yes, there was my position and there was trader A's
position and...whoa! A manager in his first year managing money [a systems
trader with no prior trading experience], had a huge profit in OJ. And so I
looked at the particulars: With the same amount of money from the pool, his OJ
position was 35 times the size of my position. He was having a wonderful year. I
wonder why?
Now what do you think happened to this system trader over the next few years?
It's clear he had a good entry system and it worked over many markets. In fact,
from what I could tell, his stop losses seemed to work well. How do you think he
did in the first negative abhorrent run his system encountered?
I think he had the ability to find patterns in the markets. I think he might
even have had some basic knowlege about how the markets worked. But I didn't
think much of his trading skills, and he certainly paid the price for not
learning about the markets he was trading. In fact, I'd say he was arrogant
about the skills of those traders that had come before him, almost as if he felt
HE had developed a new way to look at the market and trade the market, and that
the pitfalls that applied to all the other traders that had come before him
didn't apply to him. Guess what? Those other traders had learned those skills
because they needed them. And so did he--unfortunately, he never learned them.
Tim Morge
Bob Fulks wrote:
>
> My thanks to Steven and Timothy for their posts. They made me realize that
> my post could have been interpreted as predicting that computers run by big
> companies will be the only way to trade in the future. That was not my
> intention. I think:
>
> > Being a great programmer will not help you create a great trading
> system if you don't know what to program.
>
> > Being a great trader will allow you to make lots of money but it
> is a skill that is hard to replicate and is labor intensive. To
> achieve this status is difficult, usually requiring learning by
> expensive experience, since no one will train you and tell you
> all of their secrets.
>
> > Being a great mathematician might allow you to be able to find
> tradable patterns with your statistics and incorporate these
> into a good trading program with the help of a good programmer.
>
> But a combination of all three skills is certain to be a winner in the
> future, and lots of parties are trying. The key point is that software
> trading systems continue to get better over time as more and more expertise
> is incorporated into them. Such developers build on the shoulders of those
> before them, whereas each individual trader has to start from scratch.
>
> But only big institutions can hire the top programmers, mathematicians, and
> traders to create such software, and then, by necessity, they have to go
> after big bucks to support their big staffs.
>
> This still leaves a lot of opportunity for us little guys to pull in a few
> thousands of dollars from the markets now and then. Whereas the big guys
> move the markets with their volume, our trading activity is too small to
> affect the price. We can go after the wake created by their big moves and
> take advantage of profit possibilities too small for them to worry about.
>
> And a clever trader will always be able to spot opportunities before they
> are widely recognized and added into the trading systems. It just gets
> tougher and tougher over time as the trading systems get better and better.
>
> No one individual is likely to be an expert at all three of the above
> skills, but lots of people seem to be putting together systems that work
> pretty well. Last fall I attended a meeting of several hundred "market
> timers", money managers who use computers to manage money by short-term
> trades. Most of them were doing pretty well with what seemed like pretty
> simple techniques.
>
> And as individuals continue to work on this and continue to trade ideas,
> the general level of knowledge will continue to increase so the little guy
> with a PC, some programmable trading software, and some programing skills
> will still be able to do OK even against the big guys.
>
> Bob Fulks
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