Quote from asiaprop:
My experience is that markets never purely trade based on technicals nor fundamentals, alone. I am most successful tuning my model that is based on pure price action to fit the fundamental environment we are in. A lot of guys who are trained engineers or CS type of people search for the holy grail expecting they can tame the market with their perfectionist mind sets. They believe a fully automated trading model is the pinnacle of what can be achieved. I beg to disagree. I have not seen anyone who struck it rich on the back of a fully automated system (but then I also have never met Jim Simons, but how many of his kind are out there?). However, there are countless successful traders who utilize technology to serve their approach to trading trends. They dont trend trade in one environment and become faders in another environment. They know when to sit on their hands and when to push size because the markets are telling them. They make discretionary adjustments to their models but they dont change their whole trading style, at least I have seen this happening only very rarely.
My point is this: Just because currently markets are not exhibiting trending properties does not mean they wont trend again. We just came out of a multi day basing pattern after a huge multi week sell-off, with flash-crash in between, BP, less liquidity in the markets partly due to the World Cup, and daily political intervention from Europe. Those are all fundamental factors yet they directly impact prices and price moves, however, not in the way on which your models were tested and calibrated. There is nothing wrong with intervening in your model in a sense to tweak leverage multiples, because it does not directly affect the algorithms but merely how much skin you want to have in the market. I simple reduce when we start basing, which lowers my losses in whipsaw market environments, though I may miss being fully exposed in case the trend continues without correction. I always trade from a defensive mindset, protecting trading capital is the absolute highest priority for me. There are times when to stick it all out and there are times when its better to reduce, and a trend following system CANNOT TELL YOU THAT. Only a trained mindset to listen to the fundamental data will enable you to successfully adjust.
And excellent example is BP. It was an excellent trade and I captured some early on (but got out way too early). Why did I get out even though the trend was unbroken at that time? Because the more politicians entered the game the more BP prices turned into a pure coin flip. In the past 2 weeks prices could have gone up or down 10%. (and they sometimes did). This is not the type of environment I thrive in. The edge was early on and I played it, and I simply move on to other names. Same with the broad market. When we move into a basing pattern there is nothing you can predict to happen anymore at least not with statistical conviction. Whats the point to stay fully exposed to a market that with very high probability will begin to whipsaw. Adjust your models but dont change your whole approach to the markets, I guess, is what I am trying to say.
