Firstly, thank you for your site, and all the knowledge and insight it gives.
Your question is what is the biggest challenge, which I think is quite a hard question to answer as a new trader. A single answer would never be able to capture the complexity of the question
5 years ago I embarked on a journey to build a fully automated black box system; whilst I hope to have the skills as a 20yr+ computer specialist, understanding how to apply this to a trading model that could reliably create returns is the real challenge. I have devoted hours of learning, research and trial and error often going down routes that in theory should work but actually deliver no results.
Until recently my system hasn’t been able to deliver consistent results but I have persevered to learn more and to try new things. I have tried unsuccessfully to apply indicators to systematic trading including adding neural networks to aid predictions. Some of these have been based on strategies that I have found online and some derived from my own thoughts.
I have built my own trend prediction module that attempts to understand the major trend, to understand when a correction is happening and to gauge the strength of the trend. I had hoped this would have been the missing piece of the puzzle but alas it wasn’t – at least not on it’s own.
The last few months, as I take some time away from a 9-5 job to work closely on the system, it has started to deliver some much better returns. I have really started to understand about Risk and Money management – things that have been implemented from the start and have grown with the system but until now I haven’t probably fully understood.
Simple quotes like “Cut your losses and let winners run” I have but recently only fully understood. At a high level these quotes seem rather obvious but implementing are rather more cumbersome, and that take something rather trivial to something much more
So to round up and actually answer your question; I think the biggest challenge in trading is to turn something complicated into something simple. Trading is inherently a complex beast, but as the age-old saying goes in computer systems at least, we cannot solve complex problems and instead seek to break down large problems to smaller problems that are easier to solve. My answer is meant to reflect both implementation and to theory.
The strategy that I am using now is rather simplistic and just attempts to jump on a trend and ride it out. It doesn’t seek to open trades at the beginning of a trend, but does attempt to follow the trend as long as a trend is prevalent. I realize now that the opening trade is perhaps less important as to the position size and what one does with trade in regards to moving stoploss and take profits. And thus, I now have a system that is almost working. A system, that as you quote on your website could potentially trade anything due to price action and not knowing about fundamentals or other intrinsic elements about the market.
I had found your site a few years ago, but, to quantify again my learning, back then I didn’t really understand it. Now, armed with a bit more knowledge, I read your site and realize – hey, this is the direction I had already taken of recent – whether on my own or sub-consciously of all the readings in the past.
I’m sure I still have a long way to go, although being close. If I were to try and quantity “close” then I don’t know if close means I’m days or still years away but will keep running on a paper account until I can have at least enough confidence. During this time and after, I look forward to reading your mailings and continuing to learn, so I close by saying thank you for sharing
But none of that sounds simple. All of it sounds overly complicated…
I still recall a classic quote from a classic trend follower: “Everything we do we could do on the back of an envelope with a pencil.”