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imn> Mark,
imn> Since we're on the topic, have you or anyone you know taken
imn> the winning edge course by Ned Gandevani?? I took the basic
imn> course about 10 months ago and feel that he's REALLY onto
imn> something different, whether he got it from someone else or
imn> thought it up on his own, the numbers work most of the time.
imn> Matt
imn> ------- Forwarded Message Follows -------
imn> From: "Ned Gandevani" <Gandevani@xxxxxxxxxxxxxxxx>
imn> To: <realtraders@xxxxxxxxxxxxxxx>,
imn> <rbarros@xxxxxxxxxxxxxxxxxx>,
imn> "Mark Brown" <markbrown@xxxxxxxxxxxxx>
imn> Copies to: <realtraders@xxxxxxxxxxxxxxx>
imn> Subject: [RT] Re: Is trading system necessary for a successful trading? {02}
imn> Date sent: Thu, 9 Dec 1999 11:46:03 -0500
imn> Hi Ray and Mark and group:
imn> I learned a great deal from your posts and other members as
imn> well. Here is what I think;
imn> 1. Is a trading system necessary for a successful trading?
imn> Yes. Here is why;
imn> Humans are suboptimal judges- Every investment act
imn> involves psychology, because every investment act is
imn> behavior influenced by both thoughts and feelings. Investors
imn> and traders may not be used to thinking of themselves
imn> and their behavior in this way. Many are likely to bulk at the
imn> suggestion that their emotions affect their investment or
imn> trading decisions or that their assessments of business risk
imn> and potentials may involve mental errors.
imn> While most investors are aware of the conscious thought
imn> processes that lead to their investment decisions, many are
imn> not aware that those processes may be influenced by
imn> unconscious emotions or cognitive errors and that their
imn> decisions thus may be less "optimal" than they seem.
imn> Research has shown that decisions may be biased by
imn> cognitive errors (Kahneman & Tversky, 1979), by the influence of emotion
imn> (Bower, 1981), or both (Plous, 1993). This is as
imn> true of investment decisions as any other kind of decision
imn> ( Kanhneman & Riepe, 1998). Whatever the cause is for
imn> decision bias, the result can be investment and trading
imn> choices that are less optimal and therefore can lead to less than optimal
imn> trading performance. Therefore, the psychology
imn> of decision making is rightly the concern of every trader and
imn> investor.
imn> Behavioral finance or investment psychology may represent
imn> the key to understanding the sub-optimal results obtained by
imn> many traders and investors. Despite in-depth 'know-how' and
imn> technical knowledge, many investors and traders are not able
imn> to generate a desirable or even a positive return on their
imn> investments.
imn> Yet few blame their own faulty decisions for such failures.
imn> Some will blame fate, market, or their trading method or
imn> mechanical system. Others remain perplexed and confused
imn> by the differences between the results that their trading
imn> method should obtain and the results that they do obtain.
imn> rarely will a trader or investor conclude without prompting that
imn> may be his or her own reasoning is to blame. As Bernstien
imn> (1997) notes:
imn> All of us think of ourselves as rational beings even in times
imn> of crisis, applying the laws of probability in cool and
imn> calculated fashion to the choices that confront us. We like
imn> to believe we are above average in skills, refinement,
imn> farsightedness, experience, refinement, and leadership.
imn> Who admits to being an incompetent driver, a feckless
imn> debator, a stupid investor, or a person with inferio taste in
imn> clothes? Yet how realistic are such images? Not everyone
imn> can be above average. Furthermore, the most importnat
imn> decisions we make usually occur under complex, confusing,
imn> indistinct, or frightening conditions. Not much time to
imn> consult the laws of probability" (p. 23).
imn> Bernstein is probably correct. Psychological research has
imn> demonstrated that, even in relaxed circumstances, peole fail
imn> to take adequate account of the laws of probability when
imn> makning decisions ( Kahneman & Tversky, 1979).
imn> Research ahs also demonstrated that emotions such as those experineced when
imn> making rsiky decisons in stressful
imn> circumstances can impede rational decision making ( Plous,
imn> 1993).
imn> Such insights may help to explain why a majority of traders,
imn> despite know-how knowldge, lose money, failing to break-
imn> even, fewer make a profit. An understanding of the psychology of decision
imn> making in general and decision pitfalls in particulr
imn> may help to explain the negative investement outcomes
imn> achieved by so many investors and tarders. Such an
imn> understanding may also aid traders in anticipating and
imn> correcting decision errors. This might lead to more rational
imn> individual investement decisions for a better trdaing or
imn> investemnt performance. ( If requested, I'll explore it in more
imn> details in other postings.)
imn> 2. Does a trading system ( either mechnical or descrationary)
imn> increase the trading performance?
imn> I'll cover in my next posting. Let's just trade now.
imn> Best, Ned
imn> -----Original Message-----
>>From: ramon <rbarros@xxxxxxxxxxxxxxxxxx>
>>To: realtraders@xxxxxxxxxxxxxxx <realtraders@xxxxxxxxxxxxxxx>
>>Date: Wednesday, December 08, 1999 8:03 PM
>>Subject: [RT] Re: Is trading system necessary for a successful trading?
imn> {02}
>>
>>
>>Hi Ned
>>
>>You'll probably get a million different answers
>>from a million different personalities.
>>
>>For what it's worth here is my view. Before I get
>>into it, I'd like to define what I mean by a discretionary
>>and mechanical trader.
>>
>>A discretionary trader is one who has a rule structure
>>but will be prepared to override the "rules' signals".
>>A mechanical trader is one who follows his rules
>>without deviations.
>>
>>Your questions raise issues other than those pertaining
>>to a trading plan - they raise issues relating to
>>psychology and money management. I think it is worth
>>repeating that successful trading requires:
>>
>>a trading plan with an edge, winning psychology and
>>effective money management.
>>
>>To your questions......
>>
>>----- Original Message -----
>>From: Ned Gandevani <Gandevani@xxxxxxxxxxxxxxxx>
>>To: <realtraders@xxxxxxxxxxxxxxx>
>>Sent: Thursday, December 09, 1999 1:02 AM
>>Subject: [RT] Is trading system necessary for a successful trading? {01}
>>
>>
>>Dear RT:
>>I enjoyed reading some of your insightful posts about trading systems. I
>>though, maybe it would be worthwhile to discuss whether a system ( either
>>mechanical or discretionary) is necessary for a successful trading. Do we
>>need to have a system as a decision support in our decision making process
>>for trading?
>>
>>"RB: For most traders, I'd say yes. You do get some individuals, the
>>successful
>>pit traders come to mind, who are purely subjective. In other words there
imn> is
>>some sort of decision making process (i.e. a plan) but it is not full
>>articulated
>>to themselves."
>>
>>If yes, do we follow our own self-made system or a carefully selected one?
>>
>>"RB: It's my belief that whatever approach we use, the method has to
>>suit our personality. Otherwise, we will probably not follow it.
>>
>>The contents of the plan are a function of our personality and experience.
>>But what it must have is a positive edge and we must believe we can
>>execute this edge."
>>
>>If not, then what are some of the individual characteristics ( such as
>>experience, commitment and discipline) and/or contextual factors ( such as
>>time pressure, outcome feedback, and incentive schemes) that may influence
>>our reliance to a trading system? And how these aforementioned factors may
>>reduce ( or increase) our trading performance and accuracy?
>>
>>"RB: All of the above factors are a necessary part of trading success
>>whether we are a mechanical or discretionary trader.
>>
>>One of the major obstacles to trading successes is "abnormal" anxiety.
imn> Think
>>of
>>anxiety as bell curve. A certain amount is necessary to get us to the top
imn> of
>>the
>>curve - this is our optimal performance. Beyond that anxiety results in a
>>dimininshing return. All of the factors you mentioned above affect
imn> anxiety -
>>
>>- to the extent they are on the positive side of the curve, they will
>>increase
>>performance, to the extent they are on the negative side, they will
>>reduce performance.
>>
>>Taking the individual characteristics and contextual factors in isolation -
>>
>>- all have an impact on our bottom line. The better and more varied the
>>quality of our experience, the firmer our commitment and discipline,
>>the more successful we are likely to be.
>>
>>Among some of the mechanical traders I have met, there is a belief
>>that mechanical traders are less prone to breaches of commitment and
>>discipline. My onbservation and experience of mechanical traders
>>does not bear this out. A string of losses (what I call the
>>dreaded drawdown syndrome) will hit all of us at some stage -
>>how we respond to it - is a result of our psychology rather than
>>external factors like whether we are a mechanical or
>>discretionary trader.
>>
>>The contextual factors you mention can be viewed as either
>>increasing or decreasing stress (time pressure) or
>>tools to help us achieve our trading goals (outcome feedback,
>>incentive schemes).
>>
>>In summary, I do believe a plan with an edge is essential
>>to trading success and to that we must add pyschology
>>and money management.
>>
>>regards
>>
>>ray
>>
>>R Barros
>>101/25 Market Street
>>Sydney NSW 2000
>>Australia
>>
>>Voice: 61 2 92673470
>>Fax: 61 2 92673478
>>E-Mail: rbarros@xxxxxxxxxxxxxxxxxx
>>
>> -----Original Message-----
>> From: John Hayden <sente@xxxxxxxxxxxxxx>
>> To: realtraders@xxxxxxxxxxxxxxx <realtraders@xxxxxxxxxxxxxxx>
>> Cc: realtraders@xxxxxxxxxxxxxxx <realtraders@xxxxxxxxxxxxxxx>
>> Date: Tuesday, December 07, 1999 7:04 PM
>> Subject: [RT] Re: question and CTA's {02}
>>
>>
>> Hi Gary;
>>
>> Its easy, say you invest 100K with a CTA, at the end of the year after
>>all fees your account is worth $150K, your account increased 50%. The
imn> reason
>>this is so good is the amount of money that he actually used to create that
>>$50K increase. Most good CTA's will use on average about 20% of available
>>equity for margin money (margin/equity ratio), the balance goes into
>>T-Bills.
>>
>> So, if you invested $100K, our hypothetical CTA would use $20K to trade
>>with, place the other $80K in T-Bills, and proceed to create a net profit
imn> of
>>$50K. This is a actual return of 250%. The trick question is ascertaining
>>the margin/equity ratio. Most CTA's in their disclosure documentation
>>specify that they will not exceed a 50% ratio. Assuming the worst ratio
>>possible this still translates to a 100% return.
>>
>> The secret to successful trading is managing your risk exposure,
>>everything else is secondary.
>>
>> Best regards,
>>
>>
>>
>>
>> At 04:28 PM 12/7/1999 -0700, you wrote:
>> >>>>
>>
>> John, thanks for the very enlightening posts.
>>
>> I have a really basic question: how is a CTA's return calculated? I
>>see all these CTA's reporting 10%, 50%, maybe even 100% in a year, and that
>>doesn't seem all that astounding to me. Certainly my system is returning a
>>lot more than that, and has for over a year. (Too bad I haven't been able
imn> to
>>trade it with real funds until recently. :-( ) But I wonder if maybe
imn> they're
>>reporting it differently than I am.
>>
>> Does a CTA's return assume zero leverage? I.e. is a $100k return on
>>an account trading the S&P considered 100k/(1400*250) = 28.6%? What if the
>>system has low drawdowns, allowing high leverage, and the account started
>>the year with $50k? Is that still an (unleveraged) 28.6%, or is it 200%?
>>
>> I'm just puzzled why people get excited about a 50% return, when I
>>would have done *way* more than that if I had been able to trade my system
>>for the past year. I'm certainly no market wizard. Am I comparing apples to
>>oranges?
>>
>> Gary
>>
>>
>>
>>
>>
>>
>> <<<<
>>
>>
>>
>> .oİş°¨¨°şİ[ John Hayden ]İş°¨¨°şİo.
>> ¨¨°şİo.,.oİş°¨¨°şİ[ Have a bodaciously outrageous
>>day! ]İş°¨¨°şİo.,.oİş°¨¨
>>
>>
>>
>>
>>
>>
>>
>>
if this was intended for the realtradrs list at markbrown.com
the address to use is realtraders@xxxxxxxxxxxxx
--
Best regards,
Mark Brown mailto:markbrown@xxxxxxxxxxxxx
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