Quote from AFJ Garner:
I am happy to think that such a durable model may be possible. It is certainly what I have tried to design for myself and, using futures market data going back to 1970, I have made sure that my models are profitable in every time period during that time frame. In 2050 somebody trading such a system will be able to look back and verify whether or not my design (and my prediction of continued profitability) has been a success. I hope my prediction is correct and that my models remain profitable. Who can tell at this point in time? In any event, I shall continue research and development and ensure that if and when changes to the models become necessary, I make them.
I was not seeking to argue with your mathematics â just the polarity of the statement â market making versus the restâ. As you now say, a model may have some of both. You can design a long term trend following system with a win/loss ratio greater than 50% where the average winner is larger than the average loser. There are profitable trading methods other than market making where a high win loss ratio and a low average win to average loss ratio are possible. I am probably just being pedantic and had misconstrued what you meant.
I would not seek to argue with your basic premise â as I stated above, I hope you are right and that an analysis of sufficient past data may give us a sporting chance of designing a simple system with few parameters which lasts well into the future. But markets of course go back far beyond 1972 and JW Henry stated at one time that they analysed price movements on commodities going back to the 19th Century and beyond. Admittedly beyond a certain date futures markets did not exist and daily prices, let alone daily OHLC, are not obtainable.
But my point is that there have been plenty of people analysing plenty of data well before we started in business â even if they did not have the computing power readily available today. Perhaps the likes of JW Henry, Dunn and Eckhart messed up their analysis; I would not know. What I do know is that some of the systems they designed seem to have perished (at least in their original form) â notably the Original Turtle Rules. JWH and Dunn looked as if they were going out of business recently and were forced to make alterations to their models â despite Dunnâs reputed contention that he is trading the same way as when he started out in business. You may have a point â perhaps (as per your definition) their systems never worked in the first place. But I for one have difficulty in believing that a system can be designed to be eternally profitable. I very much hope I am wrong.
Your design approach and your analysis approach sound typical.
Your comparisons to others and to specific periods establish the scope and bounds of what is possible for you.
I would assume that when you go about interrelating with other professionals in your environment, most things and considerations fit into the range of approaches and the range of analysis that is done. The operating products probably also fit into the milieu of how surviving businesses perform. A lot of businesses come and go as you point out.
Naturally, you are fairly certain as to why various operations arrive and survive while others that are established finally drop out of the picture. There are many chronologies of the given mixes at times and many narratives of the lives individual enterprises.
Scales that establish spectrums of the character of most of the facets of approaches, analysis, models, mathematical tooling, sizing, and performance abound. From this there emerges a sweet spot which has moved around over time in your estimate of the history of success in trading.
I like reading this thread and its contributions, since it shows, in a defined way, the biases of the contributors. I associate these biases with limitations that prevent people from looking into other parts of the many spectrums that measure the relationship of traders and the markets.
The "small slice" comment was founded on some limitation, apparently. I can see that a lot of potential efforts for enlarging the slice are not affordable. This industry does not follow the model for most industries where growth has a relationship to knowledge. Not being able to afford the premium for knowledge, especially in a financial construct, is worth examining.
What people can't, won't and don't do is may be where the answer to your current question lies.
My time offset from yours is not more than a decade or two and I do not see the need for such a long interval to be able to draw conclusions. As an architect and as an adjuct professor in that field, I observed two primary streams of creation: A. developing one theme through iterative refinement and B. looking at many themes, and letting them compete until one is processed to completion as the best fit.
B is the modus of the contributors here and the caveat is the character of the market over time. The 80 year period you espouse is a determinant for finding out if some selected approach has durability.
Buffett's theme as we all know has the word durability in it. He is able to chose a different horizon than you and deploy his theme through rotation of capital as conditions permit opportunities and other opportunities fade.
You use the bottom line as the survival measure. Our culture does otherwise; it uses Dr Zeuss's measure, "biggering". We have, at long last, arrived at paying the social price of "too big to fail" after a long period of preventing cartels and the dominance of single enterprises (AT&T)
So I have just surronded this conversation with more items to include in the consideration of trends.
Finally, it is a good idea to dedicate a little time to looking into constructs and punching up the next refinements that will shift them along the spectrum. This is a rational exercise that can lead to rethinking basic constructs.
For example, in the dairy and cattle industry, the focus is production which has two dimensions: peaking and holding to the peak for milk and rate of weight gain for beef. Antibiotics (slow release) was the rage at one point since it shifted the performance a percent or two for each. For 50 cents a head per month, it was determined for over 14 million head, that at least seven times the anitbiotic's shift in peformance achievement and dropping the antibiotics did result on a rotating annual 12 month performance measure. The industry shifted its approach as a consequence.
The contributors have several common problems. There are no pooled efforts to address these problems. The solutions to these problems are used elsewhere. For the dairy and cattle the solution was simply stress reduction. Lo's research in the big sector of trading discovered and documented what were some major causes of degradation in trading performance. None of it had to do with the market's operation and the market's evolution over time into another kind of market. The general performance examined was not related to the connection between taking the market's evident offer and trending in markets.
As I mentioned previously, I found that using induction (right at the beginning of over 50 years of trading) was inappropriate. This statement is not a casual one (many many casual statements, bordering on beliefs have been made here). The consequences were that I do not operate in the sweet spot the thread defines nor do I have to deal with the down side issues the thread has defined.
