The research answer to our question says that we gain trading expertise by performing superior research. We collect a database of market behavior and then we research variables (or combinations of variables) that are significantly associated with future price trends. This is the way of mechanical trading systems, as in the trading strategies developed with TradeStation and the systems featured on the www.futurestruth.com site. We become expert, the mechanical system trader would argue, by building a better mousetrap: finding the system with the lowest drawdown, least risk, greatest profit, etc.
A variation of the research answer can be seen in traders who rely on data-mining strategies. The data-miner questions whether there can be a single system appropriate for all markets or for all time frames. To use a phrase popularized by Victor Niederhoffer, the market embodies “ever-changing cycles”. The combination of predictors that worked in the bull market of 2000 may be disastrous a year later. The data-miner, therefore, engages in continuous research: modeling and remodeling the markets to capture the changing cycles. Tools for data mining can be found at www.kdnuggets.com.
There are hybrid strategies of research, in which an array of prefabricated mechanical systems are defined and then applied, data-mining style, to individual stocks to see which ones have predictive value at present. This is the approach of “scanning” software, such as Nirvana Systems’ OmniTrader. By scanning a universe of stocks and indices across an array of systems, it is possible to determine which systems are working best for particular trading vehicles.
No comments:
Post a Comment