Periodicity Drift

Posted on Oct 13 2015 - 1:39pm by Sharpe Trade

I have come to the conclusion that almost (I said ‘almost’) every ‘bona fide’ trading methodology ever invented is profitable, and works.  

Take any one of them.   Pivot strategies.  Reversal strategies.  Pivot and reversal methods.  VWAP.  I don’t care if it’s a ridiculously simple moving average crossover system.  I don’t care if it’s fading one of the above methodologies.  If you as a trader adhere to a strict money management policy, as well as psychological and emotional discipline … you can make millions in the markets with any one of a number of strategies.

Of course, not every small retail trader is making millions.  Indeed, most of them are not profitable at all, and continually bleed money.  The problem of course, is the aforementioned lack of discipline, and lack of an understanding of proper money management.

As stated at the outset, I have come to the conclusion that almost (I said ‘almost’) every ‘bona fide’ trading methodology ever invented is profitable.  Many methods ‘work’.  But when traders get into trouble due to their lack of discipline, they blame ‘the method’ or ‘the system’, and quickly begin to hunt up ‘the newest, latest greatest ‘hot’ system’.  I refer to this as ‘method hunting’.  

The problem isn’t the method.

The problem is the trader.

A problem of discipline that I repeatedly witness is that of ‘periodicity drift’.  Or if you want to describe the problem more fully?  Is that new retail traders do not stick fast to a chosen time-frame.  As the fourth principle of money management states, you should know what time-frame you are trading before you ever begin to embark on a trade.  In other words … 

I’m going to hold this stock for 10 years!!

As soon as they are up 10 points on the stock and it looks ripe for a small pullback?

Well, profit is profit, so I am going to take my profit here!

This works in reverse as well …

I am going to day-trade this stock with ABC methodology

As soon as the stock sinks below their average drawdown limit on one or two trades?

Well, it’s a good company, so now I am an investor with this stock.  I’ll hold it for 10 years.  And by the way … that ABC day-trading methodology is garbage“.

Like a vessel succumbing to the drift of winds and current, stock traders drift in sticking fast to one periodicity for their trading.   The investor suddenly wants to become a day-trader.  The day-trader quickly transforms himself or herself into an ‘investor’.

You can take almost any method, and make it work.   It’s not the tool. Tschaikovsky used canons for pities sake, in a musical overature.

Appropriately timed of course …

2 Comments so far. Feel free to join this conversation.

  1. Viet October 14, 2015 at 9:39 am - Reply

    ‘Let your losers run and cut your winners early’ what can possibly go wrong? 🙂

    • Dan October 14, 2015 at 4:15 pm - Reply

      🙂

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