Today’s podcast guest is Chris Clarke, ex-Goldman Sachs executive director and founder of Lawrence Clarke Investment Management. Clarke has been developing trading systems for decades.
The conversation today gets into the psychology of systems trading. Trend following is inherently simple to understand, and does not require above-average intelligence once the system is in place. Yet so many people, including most fund managers, tend to downplay trend following and keep seeking the “holy grail” – a magical system that will supposedly make them money without any downside. An interesting metaphor for this that Chris offers is that of weight loss. Although the theory of it is simple (diet and exercise), most people keep seeking the magic bullet that will make them achieve results without following the system. Much the same with trading.
Another topic that Michael Covel and Chris Clarke talk about is understanding the difference between risk and drawdowns. Drawdowns are normal, and will be there for as long as trend following as a strategy exists, and the markets keep trending. Ultimately, trend following is about human nature, and that’s not about to change.
In this episode of Trend Following Radio:
- Trusting the system once you choose it
- Being prepared to trade no matter which way the markets go
- The importance of edge, and why gamblers lose
- Looking at the math behind trading strategies
- Understanding “market truths”
- Drawdowns vs. risks
“The desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader. The success rate of trades is the least important performance statistic and may even be inversely related to performance.” – William Eckhardt
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