Systems Designer + Trader
System Dynamics was pioneered by Jay Forrester, an American computer engineer and systems designer. He was a professor at MIT and I came across his work after diving into Ed Seykota’s work as a mentee.
About this blog post. I don’t think there is a recipe for success and I also think it is somehow silly to provide a set of rules that will be successful for trading. Markets change all the time and the best you can do is create your own system. Hence, I am skeptical about the professionals who sell you the algorithms that will make you money (I personally have never bought them, so this is an assumption, but I am not sure why you would sell your winning strategies that made millions for a few thousand dollars). I am also skeptical about people giving advice to other traders — → I would be skeptical about this post.
About my trading career. I started in finance right after college after completing my MBA. I was 22. I joined a private equity firm as an analyst in NYC and would then do a series of jobs in other industries, coming back and forth between them and finance: at FXStreet.com as a derivatives analyst and then at the hedge fund based in Chicago called Sanborn Kilcollin Partners. In 2013 I dropped out from college (second master’s) and started studying trading + building World Tech. I have done a lot of studying and a little of trading (mostly cryptocurrencies and futures). Like in sports and entrepreneurship, I think experience comes from empirical evidence and processes. In other words:
You and your own startup > MBA students
You, trading (successfully or not) > reading about trading
Athletes > commentators + spectators
What I know about trading. There seem to be many ways of trading. For a fact, there is technical analysis — which focuses on price action and analyzing charts — and fundamental analysis — which focuses primarily on the underlying forces and variables that shape the economy and society. Then you have combinations of both “schools of thought” through either discretionary trading and systematic trading. Ultimately, it all comes down to discretionary, because a human being makes the final decision to start trading or start a fund (maybe in the near future we will have robots starting hedge funds, who knows), even if she or he uses systematic algorithms.
“Give me six hours to chop down a tree and I will spend the first four sharpening the axe.” — Abraham Lincoln
Systematic Trend Following Trading. I tried fundamental analysis and it did not work for me. Then I started doing technical analysis while preparing for the CMT certification. I read all the books, took the exams, became a member, etc. I was 100% discretionary. When I learned how to program, I started to think in algorithms and that happened around the time I read Market Wizards by Schwager and Reminiscences of a Stock Operator by Lefevre. The interview made to Ed Seykota had a profound effect on me. I became curious and started to read about him and his work. He pioneered systematic trading back in the 1970s. He is basically a legend. He studied in MIT under Jay Forrester and became incredibly successful. In Market Wizards, he mentioned a combination of disciplines that made trading work for him: cognitive psychology, system dynamics, mathematics. His thinking is very clear and you see it in his writing and communication style. If you are serious about trading I would start with those two books and then read Ed Seykota.
Other resources and different markets. I am basically a systematic trend following trader. I built a system of algorithms that make signals based on price action and other variables. When signals are send, I execute orders. It is very straightforward. Building the system takes time — at least I took a few years (and perhaps I should not have taken that long). Following your system is the hardest part and at the same time, what is less time consuming. Now, you can spend your lifetime optimizing your system or systems. You asked for a list of books and authors. Here are the top 10 authors. I have read over 100 books on trading since I started studying, but let’s keep it simple and save you some time (again, be skeptical). The order does not imply importance, but these works have definitely shaped my thinking:
- Trading Tribe + Govopoly by Ed Seykota
- Trend following trading by Michael Covel
- Black Swan + Antifragile by Nassim Taleb
- The misbehavior of markets by Benoit Mandelbrot
- Trading Systems and Methods + Trading Strategy by Perry Kaufman
- Market Wizards + Schwager on futures by Jack Schwager
- Extraordinary Popular Delusions and the Madness of Crowds by MacKay
- Payoff + Predictably Irrational by Dan Ariely
- Thinking fast and slow by Kahneman
- Speculation as a fine art by Watts
Everything should be made as simple as possible, but not simpler. A.E.
AUDEAMUS
