The Beauty of Simplicity: Why Successful Traders Prefer Simple Trading Systems

[Dollar_McGavin]

I believe these principles can be applied to the long term investor also...

Examples I have used over the years; Apple, Google, Amazon, Microsoft would have a bad/one off quarter. The market spanks them and I buy.

I know that concept is very simplistic (and more things go into the decision), but the same concepts can apply to the investor's trading pattern...

Yes, exactly this and it works very well.

Mine is just as simple as yours:

1. Load up on stocks after a major bubble bust
2. hold until next bubble then sell stocks and rotate into safe havens
3. hold safe havens until crisis dissipates and reload up on stocks.
4. Wash, rinse, repeat.

As you wrote, the concept is simple but a lot more analysis goes into the decision making.

 

[RStrauss]

Question is - what is simple? Say I have an MA crossover strategy with 3 filters (i.e. when the market is in any of the three conditions I would not buy/sell on a crossover), is that considered simple?

 

[Frederick Foresight]

Question is - what is simple?

Okay, I’ll take a stab at it. But remember, you get what you pay for.

Without going into the details of your approach, have you tested the validity of the method, and is it fairly robust under different market conditions? Or can you at least identify conditions adverse to your approach reasonably early enough not to do your account undue damage? Providing that your answer is in the affirmative, can you pare down or eliminate any of the decision criteria (variables) without compromising the efficacy or robustness of your method?

 

[Sekiyo]

Question is - what is simple? Say I have an MA crossover strategy with 3 filters (i.e. when the market is in any of the three conditions I would not buy/sell on a crossover), is that considered simple?

The question is Which one is simpler ?
A five variables, or a four variables, system ?

If you can remove one variable then good for you.

The real challenge is determining which variables are essential and which are redundant or non-contributing.

One question could be …
How many variables should a trading system have ?

Most successful traders and quants agree that 3-7 variables are often sufficient for a robust trading system.