Questions of the Day

Here are some questions received in the last 48 hours:

Q: Do you think the stock market rally will continue?
A: Markets always go up, down or sideways. I can’t predict the timing of either option, but neither can anyone else.

Q: Who is your favorite Market Wizard in your DVD collection?
A: They are all similar thinkers, but with different personalities. I don’t have a favorite, but really enjoyed each experience with each trader.

Q: Can I buy individual pieces of your trading system course?
A. We don’t provide our trading system course à la carte (see features). Why? We don’t view educational experiences provided to our clients as a ‘commodity.’ Personal support is an integral part of our educational method and there is no way that can ever be properly priced for every individual. That said, support is built into our price and so far for over a decade it has worked well for clients in 72 countries.

28 thoughts on “Questions of the Day

  1. Michael,

    I have been reading one of Van Tharp’s books, and his main point seems to be figuring out who you are as a trader and developing a system that fits your personality. Since he was one of the Market Wizards, I thought this question might be applicable…Does your trend following course cover this topic, and are there different types of systems your course recommends based on an individual’s personality type and how it might pertain to trading?

    thanks
    Jeff

  2. It seems to me that a lot of the questions that people ask would be answered if they bothered to read you books first. People always want a shortcut to the shortcut.

  3. Jeff, people talk of finding systems that fit your personality, but I have not seen systems over time beyond trend following that work. So what then are we talking about exactly? I am laying down the gauntlet. My books/sites are filled with examples of trend followers doing well for decades. Where are the other systems? 🙂

  4. Jeff, also, you made the statement “Since he was one of the Market Wizard” … I know many in those books and they don’t walk around with some label on their jacket. And of course a book written 20 years ago is not definitive today … I just don’t like it when I start to see assumptions made about anyone or anything … let Tharp’s work stand on its own … but being in that book doesn’t define any of those people with a permanent label.

  5. BTW, I did not post these to make fun of anyone. Sure, it can be frustrating when people don’t read up (especially for me), but this was just an attempt to answer questions.

  6. “Since he was one of the Market Wizard”

    I like Tharp very much, but he was in MW as a trading psychologist, not as a superstar trader.

    “Jeff, people talk of finding systems that fit your personality, but I have not seen systems over time beyond trend following that work. So what then are we talking about exactly?”

    This was also echoed by Schwager himself in New Market Wizards: “the most important characteristic that all market wizards have is that they’ve adopted a trading system to fit their personality.”

    I define a system as EVERYTHING that is part of the input, process, and output of a trader. If by “system” you simply mean a mechanical back-testable system then I think that definition is much too narrow. I personally mistrust any part of a potential system that cannot be properly back-tested, but that’s just me. I don’t know how to back-test sunspots or Elliot Waves, so I mistrust and reject those things. I also have no idea how to back-test whatever it is that Warren Buffet does, even though it seems to be working for him. So it IS possible that a strategy can be good, but not back-testable.

    My point is that a complete “system” means EVERYTHING. If you are Citibank and you are Too Big To Fail..then that is part of your system. If you can buy a large enough stake in a company to win a seat on the board, then that is part of your system.

    So this statement:

    “but I have not seen systems over time beyond trend following that work.”

    greatly depends on how you define a system.

    I recently bought your “Broke” DVD and enjoyed it very much. I was very interested in seeing Salem Abraham since he lives not far from me. I notice that Mr. Abraham is very good-looking. Would you consider his attractiveness to be part of his system? I do.

    Why? Very simple. Because he is photogenic he got quite a bit of screen time in your movie. If he chose to, he could probably get some screen time on Bloomberg. He’d look good in a prospectus. All of which means that his looks could be an edge in attracting investment dollars. His looks are part of his system.

  7. I have met with many top systematic trend followers (as defined in my two books)…and I don’t consider their physical appearance part of their trend following system. With all due respect, that is nonsense. I am specifically talking trend following trading systems, not marketing. Raising money for a hedge fund is raising money for a hedge fund. It is not a systematic trend following trading system by definitions that have been around for decades, definitions that are crystallized in my two books.

  8. I guess I could have said, “Where are the other SUCCESSFUL systems?” But to the bigger issue…the notion that there are all these systems out there all different…and that you must pick the one that adapts to your personality…is not backed by data. Systematic trend following works. Do it or not. But where are the other systems that work?

  9. Yes, I think this is the key problem. We have differing definitions of “system”. I would include anything as part of a system definition that could result in emergent properties/synergy. I would also include the marketing aspects/money raising as part of the system. Why? Because the money raised is the primary input into the trading system. I as stated above, I would include anything in the input, process, and output as part of the system. I realize that you are writing books on trend-following trading systems and not Systems Science, but they are highly related topics.

  10. Just saying ‘system’ is pretty generic stuff Gene. The whole idea, at least with me and my work, is the discussion of a system that has some there there — not just philosophical.

    I also don’t approach this from a hedge fund perspective. They make great examples, but trend following system trading is the issue. That can be done as an individual or fund — but how you do it is independent of the strategy.

    Further, to your point on Abraham, Chapter 13 of my book really takes the notion that his success can be attributed to some degree to his appearance apart soundly.

  11. Ok, here’s a quote I pulled from http://www.sorostrading.com, which by the style and links appears to be one of your websites(?):

    “Perhaps Soros’ most distinctive feature, the trait that explained his investment talents the best, was his ability to gain membership in a very ‘exclusive ‘ club that included the leadership of the international community…. Such encounters clearly gave Soros an advantage over other investors.”

    His information network IS part of his system. Why? Because that network accounts for much of his edge. And if that is true that “clearly gave Soros an advantage over other investors” then at least some of the success of his strategy can be explained by THAT factor rather than a particular trading style.

    I am not sure whether or not you would consider Soros a trend-follower. He is mentioned in your book, but that was in a discussion of zero-sum. I would label him a “philosophical trend-follower” (identifying a catalyst in the world, generally political in nature that he thought would cause at least a change in trend, and hopefully(for him) a boom/bust)…esoteric but very profitable.

    So looking at Soros, if he IS a trend-follower then some of his success is explained by factors outside trend-following, and if he’s NOT a trend follower then he is an example of a trader who is successful as a non-trend-follower.

  12. And where are all of the other Soros clones? The discussion was systematic trend following trading, not just ‘traders’. There are an assortment of reasons why there are a handful of mega hedge funds out there, but that’s not this discussion.

  13. The performance data is out there for many, many trend followers. If someone wants to show the performance data over time, consistently, for a another strategy practiced by many unrelated players — I am waiting to see it.

    So people say get a system compatible with your personality? I say that’s not smart advice. I say get a system that works. It’s Turtle experiment 101.

  14. Bruce – I am not looking for a shortcut – I am in the middle of reading Trend Following for the second time – maybe you are taking shortcuts and jumping at the chance to criticize people instead of actually answering a question with some sort of susbstance, instead of responding with no thought involved

  15. Michael,

    I am not criticizing Trend Following – I believe it works – but I also have heard several of the guys you do interviews with and talk about in your work, discuss on their Market Wizards interviews that they feel everyone must find a system that works for them – I was referring to position sizing, drawdowns, exits, R multiples, entries, trade frequency, risk acceptance, trade holding time, etc. – again, I believe 100% in Trend Following but I have also heard Ed Seykota, Richard Dennis, Paul Tudor Jones, Van Tharp, Larry Hite, and a few others state that people must find their own system for any of it to work – so I don’t feel my question was that illogical or “off base” – also, I did not think you were making fun of me, but I do feel that my question was valid – I was simply wondering if that psychological part of trading develpoment was covered in your courses, since it is referred to by so many of the “Market Wizards” – thanks

  16. Gene – I agree with you on your assessment of what Schwager says – i am actually suprised that what I asked got the response it did – almost every “great trader” I have read about or listened to an interview about, including many whose performances are cited on the Trend Following website, have said that they belive people must develop their own system to be successful – so I am suprised that my question wasnt looked at with more validity…

    also, I have to disagree with what you say about Tharp – he is saying that everyone must develop a system based on their own personality because that is what he has found all of the top traders do, and most of them are trend followers, BUT they still believe that people must create a system that works for them and their personality – so how can we discount his findings when it all relates to his modeling work he does with the Market Wizards?

  17. Michael,

    I think you answered my question, in post 14, I guess I was asking it in the wrong way in my first post…

    “”””So people say get a system compatible with your personality? I say that’s not smart advice. I say get a system that works. It’s Turtle experiment 101.”””””

    thank you – that is what I was asking in the beginning of this post – and thank you for your answer – I am just confused because the above statement seems to contradict the advice of many of the guys on the Market Wizard interviews, but maybe I am interpreting what they are saying in the wrong way – thank you for your time though and addressing my question…

  18. Jeff,
    I have read both books. I had all of your questions aswered by reading both books. I found your attack on me trivial. I hope that you can get it a second time through. I have noticed after looking at many posts like yours that few people seem to grasp what he is teaching in his books. Good Luck.
    Bruce

  19. Bruce,

    I am happy for you that you were able to grasp all of the concepts by reading both books. My comments to you were not an attack, just simply a response to your misguided accusations about me “looking for a short cut” after I asked a very legitimate question and raised several legitimate points/topics which you still have not provided any response to, but I doubt that you will and I am not expecting you to, as is the case with most people who make posts such as yours…

  20. Jeff, I agree with you. Many of the replies on this web site seem to be just “read the books”, which are really not that helpful. Why not just say “use wikipedia or google” which might actually provide more specific answers.

  21. Anon, you have to start somewhere. If you, or anyone asks a question that you may be feeling is easy and quick, while I know it is not — recommending my books as a first step — makes good sense.

  22. Anon,

    I have noticed that also. It is wierd, because I feel that Trend Following is a very viable method, and I am really enjoying learning about it’s advantages and disadvantages. It just seems like some people get so defensive and become ultra sensitive anytime they are asked a question which involves thought and explaining their viewpoint. Not sure why that is…

  23. I am not averse to a debate or criticism. In fact, if I don’t get criticized I am not doing my job!

  24. Jeff, there may be some validity to “finding a system that fits your personality”. But what an individual has to do first is define “system”. Other than arbitrage, all successful systems are in the the trendfollowing category. So to me, “finding a system that fits your personality” would be defined as “how much will you risk, ie. 1%, 2%, 5%, etc. We all have to have our entries and exits in place, one parameter is really no better than another. However, change the risk parameter from 1% to 2%, and I bet you get a dramatic difference (return and drawdown). So, an individual has to find what they’re comfortable with; low return/low drawdown or high return/high drawdown.

    So “….fits your personality” is probably better said, “Figure out what you want out of trading. Then, design your risk around that; knowing that drawdowns are inherent. What do I want, and am I comfortable with the drawdown to get what I want”?

  25. Another question I have: What value do individual traders provide society with?

    I can understand that fund managers earn fees by helping clients earn profits. But what about individual traders who trade their own account?

    I think Anthony Robbins said that what you earn is directly related to the value you provide, so to earn more you should provide more value.

    What value do traders provide? A couple of things I can only think of: capital and liquidity. But how do returns relate to the value a trader provide?

  26. anon, if you take traders and speculators out of the market what are you left with? Of course, that ignores the point that everyone (including you) is a trader to begin with.

  27. Todd,

    You are correct, but I think you left out several other factors which are usually unique to one’s personality and have seem to only really focus on drawdowns . Other areas that you did not address would be trade frequency, markets traded, R-multiples and R-multiple expectancy, exit parameters, volatility indicators, ways to identify the 6 types of markets for each and every market you trade, time frames, etc.

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