Trading Pal Blog

Technical analysis came of age in the fifties when RSI and the stochastic indicators were published. It was criticized by the advocates of fundamental analysis who argued that you'd better learn to read the balance sheets just like Warren Buffet does to make it big on the share market.

Then with the downfall of Enron and others it was apparent that a solid balance sheet was not enough and the argument was: "Everything you need to know is built in the price." Tomorrow's price that is - and nobody knows for sure what that's going to be.

Why on earth would you believe an algorithmic system would be any good at pulling consistent profits out of the market? Testing is the answer. You can put your day trading robot out to pasture for a while until you have trade logs to show the evidence of something above random chance in terms of success rate.

If there was a way to turn lead into gold we would know about it by now - yet financial alchemy is alive and well.

When there is greed, failure follows close behind. Yet an astute trader would readily try and use a new system to challenge common assumptions.

Markets do and will change over time. You might be fortunate enough to have locked onto a profitable pattern. The moment it becomes known and many participants start to emulate your trades, the pattern will disappear! It's called an arbitrage effect.

In the nineties William Eckhardt and Richard Dennis set up the Turtle Trading experiment. The issue was to settle an argument between the two partners, to figure out if the skills of a successful trader could be reduced to a set of rules, in other words can trading be taught? The experiment was overwhelmingly successful with novice traders ending up making $100 million. Eckhardt who thought trading could not be taught, had lost his bet with Dennis.

These days Wall Street magnates do not throw their pearls to the pigs. If you see someone promising you a blackbox trading system run away as fast as you can. Only gullible fools wishing to be parted from their money will fall for that.

One thing you can do though is compare your own performance with an automated trading system and see how you can improve your skills. That's what Trading Pal is all about.

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