Mechanical Trading Gone Bad Thanks to Human Mind!

Discussion in 'Strategy Development' started by tradesystems, Nov 9, 2005.

  1. I recently designed a very profitable mechanical day-trading system for a graduate of an Ivy League school. Now, I must first inform you that he insisted that he wanted to trade the mechanical system. However, I was clueless to the fact that he actually wanted to have to make some decisions. I designed the system so that he would not have to think. After 3 weeks of trading in July, he said that the program was not profitable enough for him. Now he is trading on leveraged capital and he had an initial input of 20k and after 3 weeks and there were tons of mistakes, he was up 50% on his capital. (Had the system been traded properly, he would have been up more around th 15-20k area, but we won't go there - at this time, he was picking and choosing the stocks that he would trade and always took the more volatile oil stocks - I warned against that). He then decided to change the way the mechanical system would enter trades and did so even though I had cautioned him against such a drastic change.

    Needless to say, you know where this is going. Over the next 10 days, trading it his way - poof, there goes the profits. He then asked me why he was losing money? I was without a doubt, amazed beyond belief. As luck would have it, he then decided to pick and choose which days he wanted to trade and can I tell you, no one could have had worse luck.

    Now, he is in a position where, by choosing which days to be in the market, along with some emotional decisions, he is now down 50% from his initial capital. He doesn't want to lose money, so he decides when to get in and when to get out on his own. A few weeks ago, he was +1k and went down to +600 due to one stock getting hit pretty hard. He then decided to call it a day. Later in the afternoon, he called me and was surprised, as the program is calculated in an excel spreadsheet for him to follow along and he should have made approximately 4k that day, but his emotions got in the way. I can't stress how disappointed I am that I design a system that actually works, when not tampered with, but you give it to someone who knows everything and they screw it up.

    He also informs me that he really doesn't like to be short, as 'the natural movement for a stock is up'? Can anyone verify this one? Are you kidding me?

    What do you tell a guy like this?