SCOTT WELSH TRADING BLOG

The Resistance

The Resistance

Oct. 9, 2020

The investing community loves to talk.

Academicians love to talk about studies that allegedly prove their belief in the impossibility of beating the market.

Self-help gurus love to talk about the studies that academics talk about.

Traders love to go into trading rooms to ask nervous questions and/or to give strong opinions about systems they’ve never traded.

All of this leads to what?

Resignation. No one will ever beat the market.

Intimidation. The academics and gurus are smarter than me. Trading must be pointless.

Paralysis. A stranger in Europe says my system won’t work but this guy in Thailand is making 1,000% per month but this guru says all systems fail but this ad said I can make $500 a day…

When hope meets Resistance, Resistance almost always wins.

Because focusing on failure stops us from doing anything.

No need to start something that’s doomed.

And Resistance thinks my Grand Experiment is doomed.

As I said in the last newsletter, I want to start publicly trading a completely-automated system.

The failure is evident in that very first sentence. See it?

Completely-automated systems don’t work.

I’ve heard famous traders say that on the internet. Not only that, even if automated systems work for a while, they always break in the end. Systems always end up failing, we’re told.

No need to start something that’s doomed.

But that’s not all.

I’ve optimized my automated systems. Remember what the experts say about optimizing? They either don’t believe in it or say it won’t work in the real market.

I’ve relied on backtesting to decide on what to trade and how much to trade – and regular people aren’t smart enough to do that.

And that doesn’t even account for the biggest reasons the Experiment will fail.

  • We can’t have a simple trade size and make money. We need Princeton degrees in complexity theory to even begin to trade a portfolio in the live markets.
  • The biggest drawdown is always ahead of us. Even if the research is good (and it probably isn’t), the biggest drawdown is still to come and that will destroy us.
  • We can’t handle winning. Humans take profits early and exit losers late. There’s no way I’ll be able to allow an automated system to make money. I’ll panic.
  • Testing never matches real life. Any profit estimations are bogus.

It doesn’t look good, does it?

Resistance makes a great case.

Maybe I should reconsider.

We’ll talk about that in the next newsletter.

 

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.