February 25, 2012

Simple, difficult and for few people

"Once a system's algorithms and parameters are established, the system
must be followed exactly and religiously. A system cannot be
second-guessed or used intermittently. Values of variables cannot be
altered. Parameters cannot be arbitrarily changed. A robust system
works over many types of market conditions and over many timeframes.
It works in German Bund futures and it works in wheat. It works when
tested over 1950•1960 or over 1990•2000. Robust systems tend to be
designed around successful trading tactics not designed around
specific types of markets or market action.
And here is the a
mazing
thing about robust systems: The more robust a system, the more
volatile it tends to be.
There are whole families of trend trading ideas that
seem to work forever on any market
. The down side is they are very
volatile because they are never curve-fit. They're never exactly fit to any 

particular market or market condition. 
But over the long run, they do extract money from
the market. You want to be focused on how you divvied up the risk in
your portfolio, how much risk you take in each market, how many
contracts you trade in each market, that's the stuff that really
counts
if you have money management wired, you can let volatility go
because you know it doesn't have any correlation with the risk of
ruin. You can use volatility to your advantage."--David Druz