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Strategies & Market Trends : Systems, Strategies and Resources for Trading Futures -- Ignore unavailable to you. Want to Upgrade?

To: Patrick Slevin who wrote (12271)	1/10/1999 3:19:00 PM
From: Tom Trader	Read Replies (1) \| Respond to of 44573

Patrick, thanks for taking the time to check it out with your contact. His response, though conceptually valid, misses the point IMO, in that it assumes that I'd treat the model/system as infallible. Although I have complete faith in the system since it has performed well over more than a decade, I still recognize that it can go wrong and therefore I use money management stops. The reality is that over the past year and so far this year, I have been stopped out 4 times in the case of the spoo and in each instance, if I had not used a money management stop, the trade would have ended up profitable or at the least not losing as much money as resulted through the money management stop. Given that I still insist on a money management stop, the chances of a catastrophic loss is negligible. As Fred pointed out, LTCM was leveraged to the core and as best as I know money management stops were not a factor -- the assumption by the operators was that the models could not fail -- and that is an assumption that I would never make no matter how well the model performed. >>The bottom line here is that the past never EXACTLY repeats itself, but even a perfect retrospective model would be a slave to the past<< I agree but as I stated that is why the use of a money management stop is an imperative. >>the human decision-making capability inherent in any skilled trader would not be enhanced by arbitrary constraints, e.g., in this discussion, I will trade X contracts, no more and no less<< Again, I agree -- but a disciplined trader is less likely to stray in this regard. If one equates the number of contracts to be traded with the observation of system signals, I cannot recall the last time that I did not take a signal when the system generated one -- other than if I was on vacation or a similar circumstance. So I have no doubt that once I have a validated model, I'd follow the rules and trade the number of contracts that are called for per the model. But I do appreciate your taking the time to try and sound out your friend -- even though his response was that of the typical academician. Not really a surprise in that I asked my brother -- who is also a professor of mathematics in the UK -- and he reacted on the same lines ie questioning the validity of any such model. However, I have asked him to humor me and give me a response despite his belief that a model based on past behaviour will invariably fail. It remains to be seen whether he will do so. I suspect that he will at some point when he is bored -- and if I bug him a couple of times!!