A reader, Ken Keeling, writes:
“Most investors would be better off if they had a bird’s brain. Consider a flock of Canadian geese flying in formation overhead. Flying in V formation allows them to fly faster than they could if they were all trying to fly home independent of one another. Aerodynamics explains it, but how many birds made it through a university? Then how the heck do they do it? After all a bird’s brain is pretty small. Turns out complexity theorists have show that the V pattern can be explained by three simple rules:
1. Don’t bump into anything.
2. Keep up.
3. Keep close to another bird.
Apparently birds’ brains can handle these rules. Now it seems to me that trend trading’s simple rules are like the bird’s simple rules. However, humans get into trouble because they have the belief that simple rules must be wrong, or that we can ‘do better’ if we develop more complex rules. Too bad, because that is where many traders go wrong.”
I like the example. The advantage of simple rules can never be stated enough!