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Friday, 9 September 2011

Pavlov's dog and Mechanical Trading Systems

I remember in the 80s there is a HK comedy spoof of the 50s Black Rose (黑玫瑰) heroine genre movies...

In the 80s comedy, a grown up Feng Bo Bo plays the role of a modern martial arts exponent  (I think she suffers from amnesia or delusion) who have a senior (师姐) who is even more skilled in martial arts than her. Their teacher gave Feng Bo Bo a bell to "control" this senior. Whenever the bell is rung, this senior must do a martial arts display or warm-up routine. It cracks me up! Can anyone remember this comedy?

Anyway, just thought the bell will come in handy to make fun of somebody in my ending...

OK, back to posting!

Pavlov's dog shows us how reflex conditioning can affect our behaviours (OK, OK. On the dog, not us! So sensitive!) 

Mechanical Trading Systems aim to take the human emotions out of our buy and sell decisions. We follow the pre-determined buy and sell rules to a tee. No ifs or buts.

A true Mechanical Trading System means you have to turn left as suggested by the "GPS" - even if there is no left turn on the road! I got this inspiration from CW8888's GPS Navigator.

If you "argue" with your Mechanical Trading System, you are a Discretionary Trader (or very confused like the Feng Bo Bo character above. LOL!) There are no shades of grey here. It's either, or.

The roller-coaster events of these few weeks are very interesting. DOW goes up 500 points one day, next day down 500 points. Mechanical traders out there. What did you do? Did you follow your Mechanical Trading Systems?

Or are you now in hospital with whiplash injury? Hey! Switching off your system is a "discretionary" decision! Cannot cheat!

Me? I am like the Tao I-Ching. I am more a Discretionary Trader with a dot of Mechanical Trading (I use automatic stop loss). What? I say just now it's either, or? No shades of grey? Yahor... Hey! It's my post and I can make up the rules as I go along. Lao kui (漏气) also must put on a straight face!

To me, following rules without question all the time is like listening to the bell and react. I would like to think I am "smarter" than Pavlov's dog. No food ring the bell I salivate for what!? Show me the money than I salivate! 

Now to my qian bei (前辈) friend Coconut. Ring-a-ling-de-ling! Ring-a-ling-de-ling!

Don't hit the face! I need it for tan chiah (探吃) one!


P.S. Young readers out there, cannot be disrespectful to seniors! Coconut and I are different. I got one screw loose in my head. I not sure Coconut got any screws in the first place... LOL!

Ling, ling, ling! Ice-cream!

Eh? I infected too... (Eggs on my face)



13 comments:

  1. first, Mechanical Trading System don't help you to control your emotion.

    but it help you to be decisive when you are not decisive, when you don't know what to do.

    means take your instinct element away cos its destructive most of the time.

    ReplyDelete
  2. second, no one can be a 100% mechanical, even the algo, you know algo? the machines? they have a manual "stop" button. this button is to prevent a supervona, an inward explosion on itself.

    ReplyDelete
  3. second again, so no one can be totally mechanical, it has to be part human part robot. example, i'm 90% mechanical and 10% decrete (aga aga only).

    if you want to be totally decrete, i suggest you go to the casino.

    ReplyDelete
  4. Ah! The kill switch!

    You must be very good at science (physics?) or a fan of Stephen Hawking!

    Now using supernova analogy!

    Lucky I also a sci-fi fan. Can catch what you mean.

    That's why I must always cheer the human spirit! Cannot let machines tell humans what to do - that's more frightening than FTs. Imagine my job being replaced by a machine in the future?

    Algos? The way to beat them is to ring the bell! Ring-a-ling-de-ling!

    Battlestar Galactica! Cannot let the Cylons win!

    ReplyDelete
  5. third, you have to have rules of trading, consist mainly your mechanical system, but you have to have room for breaking the rules, that will be your descretionary "system".

    so don't "kay kain", listen to the bell. i have to constantly remind myself.

    ReplyDelete
  6. ya you are right, i'm interested in cosmology but no physics background.

    no, you cannot beat the algo, you have to stay away from them, hey didn't we discuss this before?

    when there was floor trading in simex, never compete with the locals. thats the rule.

    wah tired haha.

    ReplyDelete
  7. however, if you are a long term, i mean really really very long kind of long term investors, may be you can be totally descretionary, cos you got lots of time to decide.

    i'm not a qualify long term investor, so guess only. my point are for short term trading.

    ReplyDelete
  8. Algos can be beaten - by the irrational behaviour of humans!

    My post Space Marines and Tyranids tries to show the connection.

    We may have super computers and complex models to predict the weather patterns. But a veteran fisherman can do the same (and with better results) with gut instinct by looking at the clouds and "mood" of the sea.

    Nah nah nah nah nah!

    ReplyDelete
  9. ya, for more than a month now my mechcanical system is out of order due to the volatility in the market. so discretionary system is at work. only just to reestablish back my long position.

    i need my job back haha.

    ReplyDelete
  10. ok, don't forget the weather is more predictable than the market.

    when i say don't compete, i mean compete in the same space and time. in trading terms, spread and time frame!

    ReplyDelete
  11. Get burnt big time then will learn to respect rules and follow them.

    ReplyDelete
  12. Hi Jared

    Your post reminds me of the commonly heard saying, "Rules are meant to be broken". :-)

    I guess what's important is not such much the trading system but the results of such systems. In investing, if you make money from pure dumb luck and walk away from the market by cashing out then that is a successful system. :-)

    ReplyDelete
  13. 1) Hello CW8888,

    I stick out my tongue in jest. I know... But I am someone who likes to argue with a stop sign... Even if the stop sign is put up by me. LOL!


    2) Hello Ee Chuan,

    Yes Yes Yes! You understand me! I rather be blond, blue eyes, and have big xxxx. Ha ha!

    ReplyDelete

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