21 May Why Strangers Won’t Steal Your Trading System
Why Strangers Won’t Steal Your Trading System
May 21, 2014
I always say that you could publish your trading rules in the newspaper and no one would follow them. The key is consistency and discipline.
-Richard Dennis, millionaire trader and co-founder of the famous Turtle Traders
In the not-so-distant past, a student came to me and told me she was ready. She said she finally believed in herself and really wanted to start to win tournaments. She promised to listen and do whatever it took to become great.
So we got to work on her weaknesses, and, in her particular case, she sliced too much. Instead of hitting out on the ball, she would panic and go to her default setting, slicing the ball high and slow over the net to make sure she didn’t miss. It went in some of the time, but I explained to her that she needed to play more offense. Good players constantly attacked her defensive slices and beat her around the court. To be great, she had to stop being so scared and defensive.
Weeks went by and she got much better. The slice went away and her groundstrokes really started to look good. She started winning points in practice against better players by not giving in to her fears and hitting the ball aggressively. It was time for her to play a tournament and show what she can do.
Her first match was on a Friday night at 7:30, and she asked me to come watch. We talked during her lesson earlier that week about how she’s going to hit out in her matches. We talked again a half hour before her match about being aggressive and not slicing. She went out in warm up and looked great, hitting hard and deep and low. She took off her warm-up jacket, got one last drink of water, and waited as her opponent got ready to serve the first point. The girl tossed it up, served it in the box, and my student got ready. She moved her feet aggressively, got her racquet ready, and…
Even if stealing your trading system actually worked—which we determined last week is probably not the case—I’m pretty sure no one would do it. I’ve seen it over and over, a student says that he will do what he’s trained to do, and then does the opposite. Richard Dennis is almost certainly right, you could publish your trading system in the paper and nothing would change.
Why? The “Magic Formula Phenomenon” is one reason. We talked about the Magic Formula on the Traders Podcast a few weeks ago. The amazing thing about the Magic Formula is that it works, and it always will work (as review, The Magic Formula is a stock screen by Joel Greenblatt that screens for “good” companies at “cheap” prices. The Magic Formula portfolio has averaged over 20% for over 20 years).
And the main reason The Magic Formula will always work is that some years it loses. No one sticks with it when it’s negative, and thus most people give up during down years. Which, of course, only guarantees that it will bounce back. People won’t stick to things in the best of times; they surely won’t stick to it in the bad times. Most people just don’t have the determination.
But the other reason people won’t steal your System is that they can’t. They just don’t believe in themselves enough. Richard Wiseman has a great article on how people perceive themselves. He asked two groups of people, one group considered themselves to be lucky and the other group considered themselves unlucky, to do a simple assignment. Wiseman asked both groups to look through a newspaper and tell him how many photographs were inside. As Wiseman described,
“On average, the unlucky people took about two minutes to count the photographs whereas the lucky people took just seconds. Why? Because the second page of the newspaper contained the message “Stop counting – There are 43 photographs in this newspaper.” This message took up half of the page and was written in type that was over two inches high. It was staring everyone straight in the face, but the unlucky people tended to miss it and the lucky people tended to spot. Just for fun, I placed a second large message halfway through the newspaper. This one announced: “Stop counting, tell the experimenter you have seen this and win $250.” Again, the unlucky people missed the opportunity because they were still too busy looking for photographs.”
Wiseman gave them the answer, put it right in front of their faces, and the second group still missed it. Twice.
In summary, it seems unlikely that giving away a trading system will ruin it.
But what is even more unlikely is that people will even follow your trading system in the first place.
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