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Strategies & Market Trends : The Final Frontier - Online Remote Trading -- Ignore unavailable to you. Want to Upgrade?

To: Steve G. who wrote (2158)	1/6/1998 5:50:00 PM
From: Eric P	Read Replies (4) \| Respond to of 12617

Steve G: <<Now to find that mechanical exit....>> I agree with you. I believe that a mechanical system can best assure oneself of the ability to trade consistently. Don't get me wrong, skilled traders can trade without rigid rules and obviously be profitable, but this leads to several potential pitfalls: 1) Without rules, can you ensure that your trading method will remain consistent over time? During a losing streak, will you be able to tell if the losses are due to an inadvertent change in your trading method, or simply the inevitable drawdown consistent with any good system? 2) Up front, how would you judge your new trading system to develop confidence before committing serious money to the system? Rigid rules lend themselves very well to backtesting which may prevent costly mistakes. 3) One addititional disadvantage of not using rules is that it would eventually limit your trading size. For example, assume a good trader is able to achieve annual returns of 100% on his/her $100k account. After only two or three years, the trader now has $400-800k in his account to manage. IMHO this is far too much money for an individual to effectively manage in a daytrading account (This is a problem we would all like to have!). However, using a mechanical system based on rules, a computer is able to simultaneously scan and screen hundreds of stocks to find high probability trades, allowing numerous trades to be entered and monitored and exited simultaneously. The challenge is to somehow build the "gut feel" and "instinct" of a skilled daytrader into mechanical rules... A very difficult endeavor, indeed. However, I think the potential rewards justify the effort. Happy Trading, -Eric