I actually meant to focus on the tape at hand today and get back into the swing of things on the trading front. However since my main Internet connection just went bust two hours ago I decided to use my connective idle time as an opportunity to talk about an issue many of you may have been battling with at some point or the other: Whether or not to scale into positions. Does it work? Should you do it? The quick answer (and you knew this was coming): well, it depends.
During my time away it didn’t escape my attention that you guys very much enjoyed Scott’s excerpts on tape reading. As you all know I am very much a systemic trader at this point but at the same time still enjoy following a variety of charts on a discretionary/analytical basis for three reasons: First I happen to be good at it as my thinking process follows a mixture between the analytical and the creative. Second it gives me opportunities for campaigns I would miss out on just focusing on my systems. Third reading the tape actually gives me ideas for building new automated systems. For all these reasons and more I decided to do one post exclusive to tape reading every [...]
I keep getting distracted, but I’d like to move ahead quite rapidly now since Mole will be back on deck soon enough. Today’s post has enough information for you to go ahead and build working mean reversion trading systems right now, with not that much work involved.
I think we’ve covered in enough detail the idea that the best systems are based around a simple and clearly articulated idea, which can be tested for veracity.
The problem with complicated ideas is that our brains are built to believe all kinds of bullshit that isn’t true. Look at the recent election for a perfect example, we are a walking stew of cognitive biases that fuck with us [...]
One continual theme in my own trading is that every time I think I have it figured out – I get punched in the face with a unexpected problem. The tendency is to go more complicated, but often the solution is a degree of acceptance around the nature of the game. Sometimes my edges work, sometimes they don’t. Sometimes they stop working for long periods, 6 months or more. That’s actually ok for me, but it’s not ok for other people. The ultimate systems you choose have to suit your personality. If you cannot handle extended periods of working hard without making money (I can) then you have to retool your systems to avoid this.