Saturday, February 19, 2005

Comment On Trading Systems

Occasionally I run into people who claim to have a "system" for making consistent excess profits in the market--for example, 200% annual returns from buying and selling options on large cap tech stocks, or 40% annual returns year after year from short-term trading of a single stock on margin, or very consistent 1% monthly returns from index trading--all with extremely high Sharpe ratios.

When I ask these people to explain what they do, they generally become a little cagey, telling me that they really are not at liberty to provide detail on their methodologies, sometimes because they have signed a non-disclosure agreement with a partner or company, other times simply because they do not wish to give away "trade secrets." Usually around this point our conversation stalls, and we then go our own ways--they (presumably) back to their trading labs to continue along their paths to millions of dollars of new-found wealth, and I back to my office, wondering if such "systems" really exist at all.

I try to maintain an open mind and temper my skepticism. However, if such "systems" really exist, my guess is that these people would be a lot more wealthy than they actually are. Another odd thing is that they tend to limit the percentage of their portfolios that they allocate to their trading systems, or no longer choose to invest their money the same way, even though they "know" their systems work. I wonder why, if they really have truly reliable systems for generating excess profits, they don't proceed to put all of their money to work so that they can move into the billionaires' club a little sooner.

At this stage in my own study of and participation in the markets, I would say that I am an "agnostic" on the validity of trading systems for generating consistent excess profits. I do not deny that they exist but also, having not yet had the privilege or good fortune of encountering a systematic methodology that produces excess profits with high reliability, I have no reason to believe in them either. In my own investing, I continue to search, trying to learn a little more each day, hoping that one day my own success as a practitioner will allow me to become a believer in some system as well. (Some might say that I have the order reversed, i.e., that I need to believe first and then success will follow--but, no, thank you, I am not ready to turn my investing into a religion!)

The best analogy that I can now think of for what it takes to become a successful investor is Ichiro, the baseball player. Ichiro, through a combination of his focus, hard work and talent, is redefining what it means to be a "great" baseball player. With Ichiro's new 2004 record for the most hits in a single season, consistently high on-base percentage, speed on the bases, and close to error-free fielding, baseball fans have gained a new respect for baseball as a "base hit" game. Baseball is no longer solely a power sport worshipping home-run kings.

I think it is interesting that Ichiro, as reported by the media, is not really able (even though he seems willing) to explain clearly how he gets the hits that he does. In other words, he has no set formula, no well-defined "system" that others can follow. Instead, what Ichiro has is discipline, the ability to make "adjustments" when needed, and unwavering perseverence. Essentially, Ichiro does his work but harbors no "trade secrets" about how he does it. We all watch him and marvel at his finesse on the field, but when we try to do the same, we find that somehow we fall short--our bodies just do not work the way his does.

My guess is that investing is a lot like playing a professional sport, as Ichiro does. A combination of inherent talent and regular practice will allow just about anyone to improve and some even to excel at the game. Devotion to the game can give a dedicated investor an "edge" over others who are less focussed. In my own daily activity as an investor, I continue to keep an eye out for reliable trading systems, some methodology that will allow me to achieve consistently high excess profits. While I remain optimistic that one day I might stumble across my own "holy grail," I am at the same time very realistic, expecting that the time and effort I put into the game will most likely allow me to hone my skills and improve my investment returns incrementally over the years--just as I have found in baseball, tennis, skiing, long-distance running and other sports I engage in.


Blogger August said...

Hey, you have a great blog here! I'm definitely going to bookmark you!

I have a line stock trading site. It pretty much covers line stock trading related stuff.

Come and check it out if you get time :-)

7:43 PM, October 15, 2005  
Blogger musica said...

We Offer The best methods to Stop Premature Ejaculation to learn more please click the next link Premature Ejaculation and visit our web site about Premature Ejaculation or

retrogade ejaculation or
Pre Ejaculation
or Male Ejaculation
or Stop Premature Ejaculation or

Premature Ejaculation cure or
Premature Ejaculation treatment or
Premature Ejaculation help or
prevent Premature Ejaculation

Also we Offer:

We offer help for acne cure you can find information in

acne cure or
natural acne cure or
natural cure acne treatment or
acne home cure or
nature cure acne


Also we Offer:

We offer help for dog obdience you can find information in

dog trainer or
dog training or
dog obedience


Also we Offer:

We offer entertaiment and you can get this visting

Download music or
free Download music or
free music Download or
mp3 Download music or
mp3 music download or

Download music or
free Download music or
free music Download or
mp3 Download music or
mp3 music download or


Also we Offer:

We offer help in penis enlargement visit

Penis enlargement or
Penis enlargement pills or
Penis growth


Also we Offer:

We offer help in search engine position visit

search engine positioning or
search engine position or
internet marketing or
blog submitter or
blog or


Also we Offer:

We offer help in Travel bargain visit

travel bargains or
discount travel or
discount airfare or
airline tickets or
cheap hotels

7:47 PM, October 20, 2005  
Blogger Google Page Rank 6 said...

You have good content on your blog keep up the good work

9:05 PM, October 25, 2005  
Anonymous Anonymous said...

I just came across your blog, and wanted to drop you a note telling you how impressed I was with the information you have posted here. I also have a free stock trading software blog, so I know what I'm talking about when I say your site is top-notch! Keep up the great work, you are providing a great resource on the Internet here!

2:31 PM, October 26, 2005  
Blogger . said...

I just came across your blog, and wanted to drop you a note telling you how impressed I was with the information you have posted here. I also have a stock trading forum blog, so I know what I'm talking about when I say your site is top-notch! Keep up the great work, you are providing a great resource on the Internet here!

6:11 AM, October 27, 2005  
Blogger usersanonimos said...

YOUR BLOG IS GREAT. I WILL BE BACK. HERE IS MY WEB SITE AN IS RELATED TO discount airfare also we have discount airfare It pretty much covers discount airfare and other similar topics available.

7:43 AM, October 29, 2005  
Anonymous Anonymous said...

High Google and Yahoo link popularity can be yours,

2:57 PM, November 01, 2005  
Anonymous Anonymous said...

5:35 AM, January 24, 2007  
Anonymous Anonymous said...


Nice Posted! Its so very informative and knowledgeable for your visitors or readers.
Thank You for sharing.. Keep up the good work..

More Power,
Lea Go
Wood Dog House

10:59 AM, May 15, 2007  
Anonymous Penny stock newsletter said...

I believe that the idea that you can somehow find a simply way to trade the market is false. If everybody is using the same methods to trade well not everybody can be right at the same time' all the time' sort of like everybody trying to enter a phone booth all at once or exit a building though one doorway. Sometimes you must think for yourself.

9:43 AM, October 25, 2011  
Anonymous Investing stocks said...

Awesome! I really like your lolmede because it's very useful. I spotted it after viewing the web page about annuity consultants. Continue the good work!

2:56 AM, March 07, 2013  

Post a Comment

<< Home