Touch It, Tweak It, Trade It
It that time of the year when panicked New York families make a mad rush for pre-school applications that culminates in endless visits and interviews to secure their little one a coveted slot. In New York where every piece of sidewalk is a competitive battle for space the pre-school admission process is an insanity all its own.
Twenty years after my first foray into the scrum of schools I now find myself once again dutifully pretending that I really do have an interest in the pedagogy of my latest spawn. This week was our first “school visit” and it was exactly as you would imagine it to be in one of the wealthiest and most liberal zip codes in the nation. Highly articulate and attuned educators full of the latest theories on child development talking about the enhancement of the “discovery process”. Which certainly was far more progressive than the I’ll-smack- you-on-the ears-if-you-so-much-as-talk-back-to-me style of Soviet instruction that I received as a lad. But hey you take what you are given.
There was one thing however that really impressed me about the pre-school philosophy. In a neighborhood where the local Apple store is one of the most profitable retail boxes for the most profitable retailer in the world the pre-school has a complete ban on all technology gadgets. Their view is that children learn and absorb information through tactile rather than digital means and I must say that I wholeheartedly agree with that philosophy. They had reams of data to support their thesis but I have my own anecdotal evidence why touch is much better than tech.
This week I spent endless hours backtesting several news trading systems for a seminar series we are going to run at BK in the next several weeks. Now I am far from a Luddite. My office is littered with more computers and screens than I can count. But for this particular project I had to painstakingly extract each event and look it up on a chart and write down the results in a 99 cent composition notebook I last used in middle school. It’s was almost as low tech as my Soviet era childhood.
Yes it was painstakingly slow. Yes it was tedious. Yes I probably could have automated large parts of the process. But it turned out to be the best research experience of my life.
All of us love to slap a few indicators together, run a script and then send it through a backtester to do thousands of permutations if trades in seconds. Its so easy. Its so simple and it seems so efficient. But I am here to tell you that its wrong, wrong, wrong.
Here is what you miss when you backtest everything on a computer. You miss the nuance of each trade. You miss watching the actual reaction of the market rather than some theoretical supposition you have in your head. More importantly you miss the tactile experience of trading hand by hand on the charts and therefore gain no new insight or knowledge.
Don’t get me wrong. I am all about running 1000 trade examples on Excel, or backtesting on MT4, but only AFTER hours and hours of manual study. Only then will you have the knowledge and the confidence that your system may actually work.
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The rule to good system design is touch it, trade it, code it. In that exact order.