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Committee: The implication is that if you design a great system, then why sell it? Why not use it to manage money? We have never found a good answer for that. Perhaps the developer doesn't have the temperament to trade, or maybe he likes getting an income without risking any of his capital. Now, we don't want to paint all developers with the same brush and say they market substandard systems. What we are saying is that there are good systems out there, but there are not many of them. |
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Neal: Does everyone have a system? Let me ask one committee member to answer. |
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Committee: Yes, everyone has a system, whether it is written or internalized. I refer to an internalized system as intuition. In both types of systems, there are rules to follow. I prefer a mechanical system because it forces a decision. There is no emotion or second-guessing involved. I require myself to make the trade, with no backing out. |
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Neal: Is a mechanical system better than a discretionary system? |
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Committee: Not necessarily. A system is a decision-making model consisting of rules. The rules are followed and a decision is made. A mechanical or discretionary system does not affect the quality of the model and its underlying rules. The decision-making rules are of primary importance. A limitation of discretionary trading is the small number of markets followed. Someone has to watch the markets if it's discretionary. An individual can watch only so many markets. Many times, the discretionary trader concentrates on one market. A mechanical system can be used on all markets. I've found trading in fewer markets leads to uneven returns. Some months are profitable and others are not. Trading many markets tends to smooth this out. |
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