I did it my way - frank
Want to share good article read recently from engineering-returns by expert trader Frank Hassler in his blog ............:thumb:
I DID IT MY WAY
This post is going to be very different from what I usually post. I want to write about my experience on becoming a system designer and systematic trader. Why now? Im about to pass 4.000h of system development and trading. Yes, Im maintaining a time log. However, its been an amazing journey from a personal growth point of view as well as emotional perspective. It feels like riding in a gigantic roller coaster.
Let me give you some background about investment history. Im a burned child of the DOT-COM times. In the mid 90s I started to invest (yes, invest) without knowing what I was doing. Then things (money) accelerated during DOT-COM phase, and again I did not know what I was doing. After burning my hands (and money) I stayed in the market and regained a lot until 2008, the point where I decided to withdraw from the markets and my past investment style. What made me change my way: actually a book from Jim Cramer. Jims first book got me really started. I read more and more books. Eventually i figured a thing called Technical Analysis.
During that phase i also run into Van Tharps books (a trading coach focused on trading psychology) and visited two of his workshops. One of his workshops turned me into a systematic trader. During his workshop we were playing a game about position sizing. One knew the expectancy of a system and had to set the position size accordingly. To make a long story short, I recognized it will be emotionally easier for me to trade when I know the ins and outs (expectancy) of my strategy rather than following the technical analysis path. Dont get me wrong, technical analysis might work for some people, but not for me! Why not for me? In my opinion technical analysis is too ambiguous. Thats been an important light bulb moment, the fire got started and never went off. I decided to focus on systematic (quantitative) trading, despite my less than optimal background. Ive been a real rookie as my background is in business administration and marketing.
Let me elaborate on some of the key learnings during MY adventure. Why am I sharing those with you? I do hope you can avoid or bypass some of my challenges by reading this post.
Have a master plan! What are the big points you want to achieve over the next year. All activities should support the achievement of your big points. By big points I mean for example: By 2011 I want to have two trading systems with a distinct investment style. I expect each of them to return XY% per year.. I know this isnt rocket science, though its so easy getting lost in narrow focused system optimization.
Make it a process! Focus on getting better day in day out, eventually results will show up. Build a methodology how you want to develop a system. In the past I often heard, we dont have time for processes; we have to create products now. Know what you do before you start and dont describe what you did after you have finished. I often fall into the trap (especially in the first year) to JUST test an idea and hours passed away without noticing. Follow your master plan!
Stay focused! There are only a very few different trading systems (styles) out there. In the beginning I made the mistake having up to 10 different systems (all focused on equities). In reality its been one system with different setups. I thought having a swing trading system on the German DAX is a different thing than having a swing trading system on the SPY. Of course it isnt! But I had to learn this the hard way. Furthermore I spent way too much time on trying to develop an intraday system. I believe creating good intraday systems is more difficult than creating solid EOD systems. Hindsight I should have focused on EOD systems right from the beginning.
Dont read too many books! (before you start). I should have started earlier by getting my hands dirty in system development. In my opinion there is too much money made in selling redundant trading books. System developers can learn as they test (to some extend). Of course education is important, but dont underestimate the power of hands-on experience.
There is no way of getting rich quickly! Only one of getting poor. Things are going to take time, at least for me. Ive invested about 4000 hours of system development (not counting the endless hours of reading books). Im still not there, I feel like Im an intermediate. I expect to need 10.000h in order to reach expert level ground. There is a great book about this topic (non trading related), its called Outliers: The story of success. The essence of the book: talent isnt born, its a process and takes time. At least 10.000 hours.
A system is more than an entry! Do not underestimate the power of money management. Invest time in researching about when is the right time to increase or decrease your position size. Eventually this is going to set you apart from the crowd.
Trading has to be painful (sometimes)! Trust your system. Often times I questioned the entries of my system, because its been to painful to execute the trade (into deeply oversold setups) as everybody was talking about the world coming to an end (finally). Of course that would have been the perfect time to make BIG money.
Dont wait until its perfect! Once you have a solid first version of your system begin trading. Start with small position size. This way you learn how to execute the system. This is something thats totally overlooked in my opinion. You will figure out if you can emotionally execute the trade, have the time or if its at all possible to execute the trade as your back tested result suggested. Furthermore you will run into some issues and make mistakes. Thats good. Its better to make them early (while you maintain a small position size). Believe me; I made every possible mistake one can make during the course of such a journey. Im not proud of these mistakes, but at least Im trying to not make them a second time.
Be honest with yourself! There is only one person in the world you cant lie to. Dont look for the shortcut, there isnt one. Focus on the concept and dont spend endless hours on over optimizing results. I know its tempting.
Find a mentor! Get support early in the process. Have somebody that has experience in the field of system design and trading. He or she can guide you without giving you the shortcuts. I believe this has been the single most important factor in improving my system design and trading. Working with this expert required me to be more explicit in my thinking and system design.
The list isnt complete yet. Im expecting to make more mistakes and hopefully learn from those.
As you can see: I did it my way. Certainly not the perfect way, but Im still healthy and alive. I know Ive to continue learn and excel in order to succeed AND pass the 10.000 hours.
Frank -
