We are distrustful of what we do not know. I think that this is the point in the eternal dispute between discretionary traders and systematic traders. Just think about how many jokes you have heard about statistics and statisticians. And what is most alike to a systematic trader than a statistician ? You have the story about the six-foot-tall man who drowns in a pond with an average depth of only two feet. Or you have also the tale about three statisticians who go duck hunting. They spot a bird flying overhead. The first shoots a foot too far to the left. The second shoots a foot too far to the right. The third jumps up and exclaims, “We got it !”. And listen this other story that comes from a specialized website on statistics‘ jokes, a prisoner had just been sentenced for a heinous crime and was returned to his cell. An inquisitive guard could not wait to ask him about the outcome. Guard: “What did you get for a sentence?” Prisoner: “I could choose life or 100 years.” Guard: “And what did you choose?” Prisoner: “Well, life, obviously. Statistically speaking that is shorter.”
You will agree that when you are told that there are lies, half lies and statistics you are not much far from the truth. And discretionary traders do not like also that attitude of academic superiority systematic traders always show. Systematic traders seem professors on the chair, they always know how and why, they always can teach you something that you missed fooled by the prices. They always know everything about what happened yesterday and on the contrary often they miss something about the future. But do not despair: just wait another two days and they will tell you that everything was so simple that they drown in an inch of water. And you will be forced to listen to their torture of what, where, why and how that price shock happened. I am a systematic trader but I agree with the discretionary foes: we are really unbearable !
I spent a full day in London on last June 28th attending the real time real money seminar of Nick McDonald and John Carter. They are discretionary traders, I cannot lay my hand on the fire assuring that these gentlemen make millions every day but I can guarantee that the seminar is really funny and full of good trading ideas. McDonald and Carter are nice and pleasant people, and it is surely worthwhile to invest one day listening what they have to say. If it would be a systematic traders’ congress would I have dared to make such a recommendation ? Absolutely not. Imagine a congress full of hedge fund managers with a whopping academic curriculum that speak aloud about autocorrelation, stationarity, trade dependency. It could be that their topics are much dense of clever remarks absolutely useful for making money. But everybody will agree that both the ambience and the people like me are … boring. Too much serious. And here we open a new chapter of the book: trading must be serious ? All what a trader does every day should be forcedly serious or … this is a job you can even laugh sometimes ? For a large part of the industry laughing is forbidden: you need to be always cautious, always say again and again that the market tomorrow could go up or down or sideways. Never take a clear decision about the direction. And always think, as an old Italian banker was used to repeat, that if the market goes up there will be somebody short and viceversa. So the public will like you the more you are not against them and if you are bullish please be inclined to congestion, if you are bearish please will be convinced of a sideways market.
But eventually why discretionary traders are hatred them too by systematic traders ? The reason is straight: they are making much money with little money and in order to do it they do not need regulators, CEO, CFO, COO, auditors, lawyers, marketing experts, programmers, compliance officers, bankers, customers, etc. etc. Trading for a retail trader is the best job in the world, and if you can perform it without holding a PHD in statistics … how much time you saved ! The problem, will tell you a systematic trader, is that you find just 1% of all the would- be retail discretionary traders that are able to make a fortune with trading and all the other 99% will lose their shirt, sooner or later.
If I can add my personal conclusion I would say that this last observation is horrible but almost true. The missing part is that trading for a private trader is so a wonderful job that for one successful discretionary trader there are other 99 traders willing to pay for a lottery ticket. And how could you say they are wrong ?