Читать книгу Trend Following - Ritholtz Barry - Страница 14

There are investors and traders, and trading can be fundamentally or technically based. Further, technical trading can either be predictive or reactive. However, there is more distinction. Traders can be discretionary or mechanical.

Trader John W. Henry makes a clear distinction between the two strategies: “I believe that an investment strategy can only be as successful as the discipline of the manager to adhere to the requirements in the face of market adversity. Unlike discretionary traders, whose decisions may be subject to behavioral biases, I practice a disciplined investment process.”39

When Henry speaks of decisions that may be subject to behavioral biases, he is referring to those who make their buy and sell decisions on fundamentals, the current environment, or any number of other whatever factors. It’s a never-ending parade of data they can supposedly sift through and utilize. In other words, they use their discretion – hence, the use of discretionary to describe their approach.

Decisions made at the discretion of the trader can be changed or second-guessed nonstop. These discretionary gut-trading decisions will be colored by personal bias. I have yet to see a multi-decade track record produced by gut trading. It’s 100 percent fantasy. Many imagine the process is like a fighter pilot strapped into the cockpit armed with an instinctive feel, or even an innate gift. It’s not that.

Now, a trader’s initial choice to launch a trading system is discretionary. You must make discretionary decisions such as choosing a system, selecting your portfolio, and determining a risk percentage (some would argue even these aspects can be made systematically too). However, after you’ve decided on the system-orientation basics, you can systematize these discretionary decisions and make them mechanical.

Mechanical or systematic trading systems are based on objective rules. Traders put rules into computer programs to get in (buy) and out (sell) of a market. A mechanical trading system eliminates emotional vacillation. It forces discipline to stick with the process. If you rely on mechanical trading system rules, and break them with discretion, you are guaranteed to go broke.

Henry puts into perspective the downsides of discretionary thinking: “Unlike discretionary traders, whose decisions may be subject to behavioral biases, we practice a disciplined investment process. By quantifying the circumstances under which key investment decisions are made, our methodology offers investors a consistent approach to markets, un-swayed by judgmental bias.”40

Maybe it is rigid to say it’s against the rules to use a little discretion. You might think, “How boring to live like a CPA.” Where’s the fun if all you ever do is follow a mechanical model? Successfully making fortunes isn’t about excitement. It’s about winning. A researcher at Campbell & Company, one of the oldest and most successful trend following firms, is adamant: “One of our strengths is to follow our models and not use discretion. This rule is written in stone at Campbell.”41

Trend trader Ewan Kirk adds:

Systematic trading involves coming up with a statistical model of the markets. Assuming that model has worked in the past, and that you have developed and researched and tested your model correctly, then your hypothesis is that it’s likely to keep working in the future. So the actual execution of trades is just continuing to follow what the model says. Now that sounds quite mechanical. In fact, it’s no different than the way any good investor works. Why would you invest with Warren Buffett? Because, over the past 30 years, Warren Buffett has made money, and you’re assuming that’s going to continue in the future. Conceptually, that’s no different than what we do.42

Traders Todd Hurlbut and Ted Parkhill further note the perils in discretion: “We are systematic. We have seen examples where managers either start to doubt and then start tinkering so there is what today is called style shift or worse where a manager dramatically changes the approach to what could be called style ‘flip.’”43