âIt is clear that economies are much more managed than they were,ââ Henry said. Signs of the times http://www.boston.com/businessupdat...stment-firm/qAfOvJf5AAgTAqZKcpDu0L/story.html
Poor Henry. His mathematical models stopped working. I wonder why ? Trend following bias perhaps ? I heard that Dunn is also down-and-out right now.
Most likely. There are really only 2 types of markets: Non-trending and volatile and trending and non-volatile. It's not possible to have something like a trending volatile market, although, some may call the 1999 ascent exactly that so I suppose the word "never" should never be used when talking about the market. Getting to the point...during 2007/2008 I was using a mean reversion high-volatility mathematical model to trade, with a measure of volatility being the critical element in the system. It was a highly profitable market! 2009 roles around and my model flat out stopped working. I was making money all throughout the month and then I'd hit a string of bad days that would wipe out the profits for the enitire months leaving me with small losses for a few months. The market was in a state of reverting from a volatile non-trending market to a non-volatile trending market but there days of each during the month while the transition was taking place. The best thing I could have done was stop trading because I didn't know which model to use on which day. For the past few years we've been in a trending non-volatile market and my model for that type of market worked perfectly. Basically every day was a "close your eyes and buy day." Life was good. Now guess what's happening. Yeah -- the very same thing that happened in 2009. Most of the days I'm using a chop method but there are "close your eyes and sell" days periodically, which is killing my chop strategy. Which model to use? Needless to say, I'm trading very light and cutting losses quickly in the current market. I refuse to repeat my mistakes of 2009. It doesn't matter who you are or how good you are -- at some point the market is going to get you. One of the many "secrets" to staying in this business is to stop trading when you strategy stops working. It's very hard to resist the urge to trade. Ohhh...don't I know! For those who wish to learn more on the subject Google "non stationary time series" and "trend stationary time series." There are some very good article (books) -- some scholarly -- written on the subject. If you study the market from this perspective I can promise you you'll never look at the market the same way again. The market is nothing more than a massive random number generator. Non-Stationary? Or Trend-Stationary? Now that is the question....