Systems Trading Interview

Excerpts from an interview:

Omega Research: Jack, in your own words, how do you define system trading?

Jack Schwager: Well, the essence of system trading is that it applies a set of specific rules for getting into positions, whether it’s on the buy or sell side, and every bit as important for getting out of those same positions. And there is no ambiguity. When certain conditions in the market arise that fulfill those rules, you enter the trade and when certain conditions exist that signal the exit of the trade, you liquidate it. And that unambiguous approach is what I would call systematic trading.

Omega Research: So do you believe that the systematic approach to trading is one of the best ways to trade successfully in today’s markets?

Jack Schwager: Well, I think it’s a very good approach for many people and it’s a matter of personality. For someone like myself, who does not like or do well under the emotional pressure, I think it’s a very good way of trading markets and it’s one which I think many people would find works well for them.

Omega Research: Did you find in your interviews with the Market Wizards that any of that group of elite traders used the systematic approach to trading?

Jack Schwager: Some of them did. A couple that come to mind are Ed Seykota, who managed only a handful of accounts and kind of while ago, but he, over the course of about 20 years, transformed accounts from $15,000 to $15 million using purely systematic approaches. There was another trader by the name of Larry Hite who had a company, Mint Investment, who at the time I interviewed them, were managing close to a billion dollars. So a couple of the traders who did have particularly impressive results did use purely systematic approaches. To be honest, though, the majority did not and that is because a lot of the market wizards had very kind of almost intuitive types of approaches which don’t translate into specific rules. And that is also a skill element which for most people wouldn’t make any difference anyway because they don’t have that natural instinct or talent to trade the way that these people do. So it still would mean, for most people, that a systematic approach might be the best avenue to start out with.