Wednesday, February 12, 2014

Should you follow the Stock Guru or be a Systematic Trader?

Are you trading with a system? Do you know when your system works and when it doesnt? or Are you just blindly follow what the "Guru" say about the market? Most market participant are "Guru followers" rather than "Trend Followers"

What is a Guru follower?
Someone who is consistently depend on other "different" peoples view, e.g When someone shout "BUY XXY stock" Guru follower will just jump in to buy, and after a few winnings, he will stick to the forum, and everyday he will just follow to see what else to buy. Buying is easy but the problem usually come when you need to sell the stocks and managing the losses. If without the right system, one cannot effectively control Risk that they are taking as they put all their focus on looking for the next opportunities. Eventually, they will end up making MANY small gains, and Big losses(dunno how to get out). Another reason of big losses is because after many small gains, traders tend to take on bigger risk as small gains cannot feed the ego and when the market Turns or volatility change they cannot react to cut loss or change to other stocks. In long run, you will have a hard time learning as there is so many Guru out there talking about different stocks using different method. Gradually you will get addicted to other people's opinion, which eventually builds indecisiveness.

Be a Trend Follower
Systematic - I am glad to say what we are doing is similar to Winton capital, our goal is to achieve consistency in trading by trading with our system. We trade with multiple model/system, monitoring price action and consistently controlling the Risk of our trading Model. Using a system will help you to know yourself, because nobody will tell you that you sucks because you cannot follow the simple rules in the system. Cut losses, let profit run. Only the trading system will tell you that, after many more occurrence, you will realize your mistake and improve on your system, mindset and risk management, which will gradually becomes a winning habit.

By attending courses that teach you Only the method, is a waste of money. The method is the least important things you need to focus on. New traders should focus more on learning how to get their objective in trading, if you want to run a hedge fund, then you should learn how to manage risk like big hedge fund. If you want to be king of Penny stocks, then you should look for some successful Penny stocks trader(that dont look like a Scamster). Nevertheless, whatever you want to be, its all about Practice, Practice Practice. There is no Quick and Easy way to get rich. 

In the video below, lets learn from the TOP hedge fund in the world and see how they trade. They use system to get in and out of market, trade the signals, not the opinion. What we can learn is even big Fund have losing years, despite losing for 1 year, they are not ditching the system. They will continue to trade the system system as the system is expected to generate positive expectancy in a longer time frame. Not many people can do this.

Intervention - System is like a machine, it will help you most of the time but some time it will not work, you have to know when not to use the system. In the video Metthew mentioned: During the credit crisis, they spotted abnormal they Reduce the risk. "Never intervene to increase Risk"

Interview with Matthew Beddall, CIO of Winton Capital Management

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