The first time I ever heard the phrase I was watching a movie- movies I like, I can watch over and over again, ad nausaum, I mean not silly recitations like the “Boiler Room” scene where every character (Vin Diesel) recites a Gordon Gecko quote verbatim, but more the file cabinet full of quips that seem to fit situation. Just the other day i impressed my 11 year old because I knew the next line in “The Terminator” when the detective was pondering the story told by Sarah Conner and states “I need a cup of coffee” and the remembered next line was “It’s 2 hours cold!” But exactly which movie, I really can’t remember. So anyhow in it’s simplest terms Occam’s Razor dictates that with two differing methods of determining a solution- if the answer is equal- the solution with the least assumptions is the preferred solution. Simply stated the simplest way to arrive at a conclusion- the better. Now if the simple way leads to an incorrect answer, that solution shouldn’t be used, so the solution is not the caveat, the answer is.
In life there are literally millions of variables, which can hinge and dictate literally millions of different directions and obviously the same number of outcomes. Same as in trading. Do you know how many Billionaires who’ve made money in the markets talk about having simple rules and STICKING to them. My wife and I took a commodities trading course many years ago- and ran up a small account about 40% in a few weeks- simple rules- simple executions. Human nature being what it is, I wanted to do better- we were listening to audio tapes by traders, reading about Livermore, and the rest, we were excited- but eventually as a rational and intelligent human I wanted more. I thought it was easy- I thought more complex would have even more startling results- I tweaked, I modified, and I changed and literally stopped following the rules. In the next 2 weeks I managed to lose all my gains, and my account was down 10% off my starting balance- so I quit. Now granted the account may have blown up even if I had stuck to the original rules- but who knows. Are markets different then previously- yeah maybe, I get the old adage that markets are run by people, and people don’t change, so markets (and technical Analysis) should stay the same- yet we see some big time money managers and traders stop trading all the time. John Henry comes to mind- ” In March 2006, Boston Magazine estimated Henry’s net worth at $1.1 billion but noted that his company had recently experienced difficulties. In November 2012, the company announced that it would stop managing clients’ money by the end of the year, and John Henry confirmed that total assets under the firm’s management had fallen from $2.5 billion in 2006 to less than $100 million as of late-2012.” More from Wikipedia- “After spending a summer in Norway with his first wife, Mai, Henry developed a mechanical trend following method for managing a futures trading account. He tested his trend-reversal method—which was never out of the market but always held a position (either long or short) in every one of the markets in the account’s “basket” of commodities—”using his own money” (in the words of his marketing literature of 1983). When that test proved successful, he founded JWH in 1981″ and “The firm’s management methods make mechanical, non-discretionary trading decisions in response to systematic determinations of reversals in each market’s direction, with the explicit intention of precluding not only human emotion, but also any subjective evaluation of such things as the so-called fundamentals, to trigger each decision to be long or short each market, or not.”
Pure mechanical system- John himself was worth over 1.1 BILLION dollars from trading not only his own account but also those of his clients. But why did it stop? had the market changed? did the system change? did John Henry change?
By using the 2nd law of thermodynamics- “entropy” all systems break down- without intelligent input ie TWEAKING.
So we are told about a LAW that requires tweaking and human input to survive and not breakdown- yet most times this results in a break down!! How is that for the oddest of conundrums?
The path of a million miles begins with one small step- we can all be overcome with “paralysis by analysis”- or what I like to call “constipation by procrastination!” Yes we have to make decisions, but ultimately the trigger has to be pulled and an action step MUST be taken to even have a chance to arrive at any destination- Take the step, pull the trigger, look yes- but eventually one must leap!