How do we become the algorithm?
The best way to become an algorithm is by taking a look at three different traders and how they approach the markets.
Matt gets up from the couch and ambles over to the computer, time to put on his nightly trades. OXBT is a buy for tomorrow at 4.74. Matt’s first thought is I’ll bring up Yahoo Finances to see what kind of news I can find about OXBT.
He doesn’t find too much so goes ahead and puts on the trade. Lo and behold, the next day he gets an email from his broker that OXBT buy order filled. The first thing he does is fire up his broker’s application and check the trade. Oops, it’s going down. Ah, gee. He watches it all day and it’s going down and down.
He starts to wonder if he should get out or stick with the system. He decides to stay in.
That night he logs on to QiTs’ member’s site to get the signals and OXBT is a HOLD. The whole next day he watches it go down even further and, at one point, his position is down over 11%. He is beside himself. What do I do? Should I stay in or get out? Eventually, he bails, he can’t take it anymore.
That night he checks the signals and it is a HOLD again and he smugly thinks, I’m a lot smarter than the system, I lost some money but not as much as the “system” is going to.
The next morning OXBT opens at 4.35 and rallies the whole day closing at 5.05. The position is closed out at 5.02 the following day for a 5.9% profit.
John gets home from work late and decides to put on his trades before he settles in for the night. He sees OXBT is a buy for tomorrow. He doesn’t know anything about the stock but is too tired to go look for information and just puts the buy order on.
He is filled the next day so logs on to his broker’s application and, as does Matt, starts to fret that it is going down. He is totally dejected as he watches it all day and when it closes at 4.26 the second day he is even more dejected, what a dog he is thinking. He has the same anxiety that Matt has but he decides to stay in.
The next day OXBT rallies to a high of 5.85 and John is no longer dejected but elated. Wow, a winner. Unfortunately, OXBT closes at 5.02, not 5.85 and John is dejected again. Gee this baby was up to 5.85 and it closes at 5.02. Ah, gee.
On the same day Matt and John put on their OXBT buy orders, Mary gets home from the gym and puts on her trades as well. The next day she also gets an email from her broker that OXBT is
filled. She doesn’t watch her trades throughout the day and goes about her business. That night she places her trades and leaves OXBT alone because it is a hold. She is not feeling good about the fact that it is down but the system has a 63/37 win/loss ratio so 37% of her trades will be losers. This may be one of them.
The next night Mary logs on her broker application to place her trades. Oh, my gosh OXBT closed at 5.02, wow! Mary goes to bed feeling wonderful that a loser has turned into a winner. The position closes out at a profit.
Which trader do you think will be successful with this system?
As a trader, we all have preconceived ideas of what we need to do to become a successful trader, a trader who can make long-term consistent profits. You’ve all probably read numerous books, taken multiple seminars, maybe even attended a few seminars in person to meet other traders.
Maybe you’ve learned different types of strategies may be developed an indicator that is excellent at reading the market, or learned how to glean nuggets of information about a company from its balance sheets. All of this is good, all of it has value and I don’t want you to think I’m telling it doesn’t.
However, and you all knew there was a big however coming didn’t you, if you enter the world of quant trading, you have to put all this behind you, at least while you’re in a trade.
Give yourself to the algorithm
If you trade with an algorithm you have to give yourself up to it. You have to trade as if you were the algorithm.
This doesn’t mean you have to give up any particular indicator you like but if you want to trade with an algorithm and use this particular indicator, you develop your algorithm around it. If you have a particular strategy you always trade, develop your algorithm around it. Then test and test and retest that algorithm to see if it was successful during bullish years, bearish years, low volatility, high volatility, and market crashes (like we had in 2008). Test it every kind of trading environment you can think of and see how well it works. If it holds up then do what is called sensitively testing to ensure you haven’t over optimized – a topic I don’t want to address right now but will be writing a blog on later.
Once you’ve put in the hours and the dollars to develop your algorithm you enter the world of trading like a Quant and you become the algorithm when you trade. All the planning has been done and is behind you, so all you need to do is follow the signals given to you by your planning and work you’ve put into developing this algorithm.
Trust but Verify
One of the comments I had from a member is that he wanted to Trust but Verify
Funny but that was exactly what I said back in 2012 when I first started down this path. Little did I realize just how much it takes to do the verification. So here is where Quantitrader comes in, we’ve already done the verification for you. We’ve put in the hours, the dollars, the learning and have verified a set of rules so all you have to do is trade it.
But you need to trade it as if you were the algorithm, not as if you were a trader.
- Does the algorithm take heed of the news?
- Does the algorithm worry about economic events that take place during the day?
- Does the algorithm watch price action during the day?
Take off the trader’s hat and put on the quant hat. The more often you do this the better that hat will fit. The easier it will become to not heed news, not watch your trade intraday and just give yourself to the algorithm.
Now am I advocating to trade this system blindly? HMMM NO! Not at all.
What am I advocating is that you, first of all, dig into the rules, and see if they fit you as a trader? Dig into the performance and see if the metrics of this algorithm fits you as a trader? Dig into the methodology. Does it fit you as a trader? If the answer to those questions is yes and you decide to proceed, become the algorithm.
Check our out the Performance Matrix for our algorithms and sign up today.
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