I interviewed system developer Michael Bryant to prepare for this post. Mike offers a free newsletter for traders that includes valuable information for those interested in trading and/or developing systems. He also offers worthwhile free downloads.
The purpose of my interview, however, was to discuss with him the latest version of his Market System Analyzer (MSA). This strikes me as a tool that could be valuable for discretionary and system traders alike.
The idea behind MSA is that you treat all trading like system trading. In that sense, every trader is a system, although they may not be systematic. Mike's way of putting it was more blunt: There *are* no discretionary traders.
By entering your trades into a program such as MSA, you can learn a great deal about your strengths and weaknesses. The program enables you to identify the position sizing that would work best for your trading, with a goal of optimizing risk and reward. The software also enables traders to identify runs of winners and losers (dependencies) and calculates detailed performance statistics on your trading. (Note: I have no commercial affiliation with the product or with Mike; nor did he solicit this mention).
My sense is that this could form a useful part of a trader portfolio that includes a journal and video playbacks of markets for review. The idea is to turn your trading into a platform for learning and development. By viewing yourself as a system and knowing how that system behaves, you're in a stronger position to optimize yourself.
Suppose, however, that you trade multiple markets. The latest version of the software (version 3) not only monitors and evaluates systems and trades, but also portfolios of systems. This would be particularly useful for discretionary traders who trade multiple instruments. You could separately evaluate your trading of each instrument and then see how each contributes to the whole of your performance.
The take-away message? You don't have to be a systems trader to be systematic about your trading.
Related Readings:
Three Steps Toward Becoming a Better Trader
Five Defining Features of Market Pros
Tuesday, May 01, 2007
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2 comments:
This is an intriguing approach. My experience with traders, however, suggests that they change methods too frequently for real testing. The many factors you have discussed -- let's just start with streaks -- cause them to alter methods based upon recent performance.
Since even the best methods have these streaks, the trader's implied system keeps changing.
Just a thought, since this is not our method, but it is based upon some real life experience with CBOE market makers.
Hi Jeff,
Great point. In that case, you're testing the outcomes of their changing methods. That is, you'd see if their changes contribute to positive performance. Change, in such instances, *would* be the trader's implied system.
Thanks for the interesting perspective.
Brett
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