I hate when people say most traders fail because they are undercapitalized
- Thread starter WhiteOut56
- Start date
People used to say that about chess: it's a mind game. Now there are mindless computers that can beat world-class chess players.
If I have a winning mechanical strategy, I can give it to a bright child and she'll be profitable as long as she follows the rules.
Maybe discretionary trading is a mind game that needs constant psychological boosting to stay effective, but a solid mechanical edge doesn't need pep talks, it just requires a person or a computer that follows the rules of the strategy.
It's like the discount merchant, when asked "How do you stay in business when you lose a little on every sale?"
"How? I just make it up with volume!"
"How? I just make it up with volume!"
You do realize that you are proving MY point? Obviously not, so here it is. Machine and man everything being equal is an advantage for the machine because no psych pressure. There you have it. The machine is never tired, never having a bad day, it is just a machine...
OK, here I quote the famous trader who (correctly) said he could publish his strategy in the WSJ, most people wouldn't trade it correctly.
As you said, "as long as she follows the rules." What are the chances? I say less than 50%...
----------------------------------
For anyone who thinks psychology and size are not edges, I refer you to Neke's journal. His size went to half in a year and he is using that account for a living, taking money out every month. His needs to perform well easily quadrupled in 2012, he even said that the stress became unbearable...
Now compare that to a guy with the same account size who is just trading because retirement is too boring...
And an advantage is an edge, so let's not get to grammatical/definitional here....
http://www.elitetrader.com/vb/showthread.php?s=&threadid=113413&perpage=30&pagenumber=2
You have NO idea what you're talking about.
For very few market participants is account size an edge.
These participants would be
Large investment banks who can get favorable funding
Warren buffet who can sell OTC options without posting collateral
Certain investors who can use their account balances to obtain semi public information
Market participants who get access to certain deals because of their account sizes (generally billionaires asked to bailout cash strapped companies at crazy funding rates)
No person on this board would be one of these.
Outside of that its not account size that matter but the leverage. Since am aspiring professional trader has roughly the same fixed costs (rent, food, market data, etc) a smaller account means they have to take more leverage to achieve higher returns to fund these expenses. It's an advantage but its an important one. A 2MM account is very different than a 20k account for a full time trader.
I contend that any strategy that can't be programmed into a computer is ipso facto discretionary.
The trader who says most people can't follow his strategy is talking about a discretionary strategy, not a mechanical one. He may have convinced himself that his strategy is mechanical but the final proof is programmabilty: either it's there or it's not.
If a machine can't be programmed to duplicate it, it is discretionary. I have no interest in discretionary trading; it is subjective and therefore an art, not a science.
Moreover, discretionary trading is drudgery. It requires constant work. The main rationale for inventing computers in the first place was to reduce or eliminate drudgery.
I know mechanical trading isn't for everybody, just like discretionary trading isn't for everybody, but mechanical trading offers the greatest promise of profiting because it completely eliminates the element of emotion. Just follow the rules. If you truly have a mechanical edge, you'll succeed in the long run even if you're bedridden with the flu.
I never said successful mechanical trading would be easy, no manner of successful trading is easy. But I for one simply cannot devote 10000 hours of eyeballs-to-chart time in the hope of developing an intuitive feel for price action. There has to be a better way and it's worth the risk of failure for me to look for it.
For you, it may be the same.
For the casino operator, trading is about betting small with the odds, watching the gamblers with cameras and giving them free alcohol and hot babes.
One is a lifetime loser, the other keeps the lights on and even pays the citizens on the reservation some of the surplus.
:eek:
Just how, pray tell, could a trader operate like a casino?
