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At 08:05 PM 8/4/98 -0500, charles meyer wrote:
>That's exactly correct Ray. And that's what I paid to be told
>at his seminar in Chicago a few years ago. However, a pre-
>requisite for attending the seminar should be that each attendee
>has already developed a mechanical rule based system that has
>an edge. After all, the end result of trading a mechanical rule
>based system that does not have an edge is that you lose money.
>And, when you lose money you are only adding to the problem
>of creating psychological damage in the form of 'not trusting your-
>self'. A loop develops where one remains in a 'stuck state' to
>quote Dr. Tharp.
>
>Charles.
Okay.. when you develop this system, it can be on paper, not programmed,
right? And your profit-taking could be based on support/resistance, rather
than just an arbitrary percentage? So it has some level of discretion in
it... If you use H&S or other classical formations, is that mechanical? And
backtesting, for the edge, how do you do this... by buying historical data
and running a backtest? Wouldn't you have to real-time test to actually
know if it's possible ie. call your broker when you get the signal, get a
quote, record it, subtract reasonable slippage & comm. and log it as a
paper-trade? I have certain concerns about the "strictly mechanical"
approach, but you both sound as if you're talking about a disciplined
rule-based approach, rather than a "black box" Club 3000 type of
methodology eg. Catscan, Aberration. Below is my response to Peter Timaratz
regarding my differentiation between the two.
At 05:19 PM 8/4/98 -0500, you wrote:
>Peter G,
>
>I'm curious as to how you interpret the word discretionary. It seems to me
>that if you are successful trading then you aren't just winging it and you
>are following a set of rules. I'd like to hear what for you is the
>difference between the two.
>
For example, Larry Connors and Linda Raschke's stuff has set rules, but is
not mechanical. Some people program every aspect of their trading into a
computer system. If you trade off charts or trail your stop by visual cues,
this is discretionary. If you use a black box (some do!) and take every
signal, that is completely mechanical. You cannot use Elliot Wave unless
you are discretionary; it just doesn't program. If you use a 7 and 21
period EMA crossover, with a 10% trailing stop after a floor of $400 has
been reached and a money management of $500, that is mechanical. I have
always been wary of putting a linear computer program into a non-linear
environment, but some people say that the rules keep you on track.. you
should never deviate.
P
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