Trading itself is a naturally solitary endeavor - everyone needs to
develop their own individual methodology and execute and manage their
trades by themselves. But, we all benefit greatly from collaboration in
all the events that lead up the actual trade, i.e., research,
methodology development, and support.
Please continue to post your thoughts and observations. The flow of
ideas is the lifeblood of creative process and the raison d' etre for
forums and blogs. It is also,
the most efficient way to build and expand a network of collaborators.
This will geometrically increase the odds for generating new ideas
which may add further robustness to our trading.
It is always interesting to look
at market variables in different ways. Adding a new class or creating
additional classes out of an existing class, creates a portfolio effect.
Different classes of measure do not behave in the same way or at the
same rate; similar to a portfolio of stocks not acting the same way as
an individual stock. The portfolio effect then, diversifies our
methodology, creates more viable trades, and adds robustness to our
overall results.
Even a competent trader’s long run edge is smaller than one would
think, due to variance, ever-changing-cycles, and emotional pressures.
Add the deployment of HFTs, and the problem is compounded to the point
where the whole is now greater than the sum of it’s parts. The result
is a finite sample of viable trades in any trade population, in any
given time period, that defines a point of diminishing returns
(over-trading). It follows then; to be exposed to the full sample, you
would have to be in front of the screen the entire time period, and
have the ability to recognize every trade opportunity.
In order to take full advantage of the sample, the trader must then be
able to hold a position (that goes against him), be able to add to a
position (that goes his way), and always be able to take the next
trade. The less skill a trader has, the less likely, the trader is
going to be able to recognize a good trade, or manage it properly once
he is in it.. Think about how many times a day, week, month, or a year,
a trader fails to execute properly, and you will have an idea of how
easy it is for a trader to diminish his probability of success. Now
consider the sample size of viable trades, for a trader with one set-up,
or a trader with a limited knowledge base and skill-set, compared to a
trader with a portfolio of knowledge and skills.
The novice trader must have a sense of purpose and immerse himself in
gaining trading knowledge. After the trader has reached the level of
competency and profitability, he must continue to put in screen time,
in order to add dimensionality and nuance to his trading. And in an era
when markets are continuously changing, a trader needs to continuously
develop fresh insights and perspectives, in order to adjust his
trading and maintain expertise. There is a saying attributed to Woody
Allen that states, “80% of success is showing up” which must mean, the
other 20% is making the most of your time.
