I am increasingly bored by trading books and blogs offering trading advice. So many of them are geared towards short-term discretionary stock trading.
I am sure that it is possible to make money by using the kind of strategy they talk about, because it is possible to find relatively persistent patterns in the market, and to train yourself to react in a mechanical way when the patterns occur. And I am sure that people sometimes make trades that computers would miss, because people can understand certain kinds of things that computers cannot and can apply variable weights to their inputs depending upon the situation in a way that computers may find difficult. However:
- To be a short-term trader, one has to spend all day, every day (to build up the standard 10,000 hours — if I hear this quoted one more time I may have a sense-of-humour failure), learning to behave in an automatic fashion. This is a positively mediaeval approach. Technology provides more efficient methods of automation.
- People are far more variable than computers. People make bad trades because they are tired, or overconfident, or underconfident, or whatever.
- Building up a “feel” for the market based on a variety of inputs and indicators may work for a while, but there is no guarantee that one’s “feel” is for a pattern of market behaviour that is either scaleable (I don’t want to be a small trader forever) or truly persistent. Consequently, when a small trader attempts to start a hedge fund, he may find that his trading ideas don’t work any more, or don’t work in larger size.