Emotional decisions, as known – major source of discretionary failure (trading without a rigid system) Traders. When trader переходит от ручной торговли на системную, it starts to seem to him, that he relieved himself of the need to make emotional decisions in the course of market trading, а стало быть, rid myself of this source of error. It's not quite right.
What is a trading strategy? This is a kind of transformation of the original price charts into trading equity.. Conversion is carried out by executing signals, it doesn't matter by hands or by a robot. Important, что в итоге вы получаете некий schedule, based on which you make decisions. Only if, in the case of discretionary trading, these decisions relate to opening / closing positions, in the case of a system trader, these decisions relate to accepting / rejecting a given specific trading strategy or choosing a strategy from a number of alternatives.
That is, a system trader looks at the chart in the same way and gets emotional, like a discretionary trader. Graph only, which he is looking at, this is a graph of his equity and equity graphs of alternative strategies. And in most cases, he tries to capture the movements of these charts in the same way., that is, it is engaged in timing.
And timing of market movements, as many times proven – this is the main way to drain your own money to the broader market. There is even an opinion, и не только мое, that the long-term growth of stock markets is due to the timing errors of traders. Traders are emotional, enter / exit the market at the most unfortunate moments, and the money poured into the market ultimately mainly comes to long-term investors, who sit tight in their portfolios, stoically sitting out any fluctuations in the indices.
System Traders Have Rid The Emotional Timing Of The Market, but received in return an alternative option for draining money – emotional timing of own equity. Equity in drawdown – the trader changes the system to that, that earned well in the recent past, or overfits the strategy for recent data.
In the case of stocks, good recent performance usually leads to mediocre future performance and vice versa.. Why it should be different in the case of trading systems? Your system may overtake buy&hold in the long run, but it is also affected by short-term market conditions, as well as the actual shares. These features, factors – they come and go, and they often do it in cycles. Results are & ldquo; better than average & rdquo;, received by the trading strategy for the recent period, may mean mediocre future prospects, because factor, which ensured the success of the strategy, not eternal.
It is possible to estimate the approximate time horizons of the action of the factors focusing on the already sufficiently studied factors of momentum and long-term return to the mean.. Momentum acts 3-6 Months. Long-term mean reversion is 3-5 years. What does it mean? This could mean, what if the strategy has been doing great for the last six months, she has a chance to hold out for another quarter or two. But if the strategy has behaved suspiciously well for the past several years in a row – better prepare for that, that her results for the next year may upset.
Summarizing – if you time your own equity, do it wisely. If you are constantly jumping from a drawdown to a & ldquo; leader & rdquo;, your trade can turn out to be an endless series of drawdowns, while the systems thrown out in moments of doubt will bloom and bear fruit.
Systemic trading protects the trader from some mistakes, but it does not protect the trader from all mistakes. Some mistakes you still have to make instead of a robot.
author: mechanic
