Thread by @madan_kumar

#MwMnuggets

Mechanical trading - a solitaire endeavor:

Many believe that, as with many endeavors, the expert fishermen can direct them to where the fish are. Fair enough thought

This doesn’t happen in trading for reasons we’ll discuss later in this thread but,

(1/14)

Mechanical trading is perhaps an ultimate arena where would-be fishermen can be taught how to fish themselves in near-perfect fashion. 😊

There are certain processes to follow and more often than not, trainers/mentors are not experienced enough

(2/14)

..or lived enough through mechanical trading to pass it on to their followers.

People seriously determined to make all the necessary sacrifices (as in devoting much time and effort) could, in theory, enjoy relatively consistent near-immediate profitable returns 😊

(3/14)

It’s not like chess, or most other learning curves that involve years of commitment before good results occur 😊

You could be a mechanical trader the day you discover a trustworthy methodology that is attuned to your psychology.

(4/14)

It is sounding pretty easy right? But let me warn you - it is NOT.

There are pitfalls that cause frequent divergence between the theoretical and the practical. Reams of lectures & books focus on the psychological aspects alone. We’re wired in similar herd-like fashion.

(5/14)

That’s why speculative mania will drive prices to improbable levels (we could not imagine of), why so many people get clobbered at market turning points & why bubbles burst time after time despite having telegraphed all-too familiar warnings. 🤣

Sounds familiar?

(6/14)

We’re inclined to fear the trades with the most potential and act rashly at the most precarious times. This is how we are wired 😃😃

One can’t succeed until we incorporate these realities in a gut, visceral level.

(7/14)

Understanding this anomaly is imperative to understand our irrational behavior. Our impressive theoretical results hang from a tiny thread — just a handful of improvisations at the wrong time and our blueprint will be voided...guaranteed !! 🙁

(8/14)

This dovetails with a key aspect of mechanical trading - it is, by design, a truly solitary endeavor. If we cannot handle solitude, mechanical trading is probably not for us 😊

So folks, before venturing into systematic/mechanical trading, a question beckons...

(9/14)

Perhaps the first thing we should ask ourselves is - “can I thrive trading in isolation?”

There have been so many trades in the past 12 years where I’d bemoan aloud over some strictly mechanical position I was in & my feeling was right and the system was wrong.

(10/14)

I dont claim to be perfect (even though this has completely stopped around 4 years ago) & i had come out without following the plan.. but the system has beat my gut feeling in the long run ..almost always 😃

Studies have shown that a trader will abandon any system..

(11/14)

after suffering, on average, three losses in a row.There is no system on earth that won’t generate three consecutive losses - trust me on this...

People also will think that they can improve an idea - they’ll add rules or alter existing ones.

(12/14)

They’ll imagine they can do better by skipping “obvious” red flag trades 😊

A trading luminary once said that if he were to print his systems in a newspaper, no one would follow them. 😊

Turtle traders also faltered once they got off on their own.

(13/14)

Long story short - in theory, following a system is as easy as flipping a switch. In practice, it is not.

It’s that solitary “march-to-your-own-drummer” mentality that mark those destined for success 😊

Happy trading all !!

(14/14)