Mechanical Trading Systems: Pairing Trader Psychology with Technical Analysis

Preface

In 1987 my father and I purchased a seat on the New York Futures Exchange for $100 and established a trading account with $25,000. The goal, he explained, was to make $2,500 a week. Although this seemed like an extraordinary annualized return on investment, I had heard of legendary traders who had taken meager sums and transformed them into vast fortunes, and so I embarked on a journey that eventually culminated in the publication of this book.

I wish I could tell you that this book contains the secrets of how I accomplished that formidable goal, but I never did learn how to consistently produce even a 100 percent average annualized rate of return on my capital. I will say that if I had somehow accomplished that goal I would probably have very little knowledge to offer the typical trader. Instead my journey was a difficult one in which I gradually learned that trying to earn several hundred percent on my capital annually was, for me at least, a recipe for disaster.

And yet if I had known what I now understand about realistic rates of return on investment vis-à-vis risks taken to achieve those returns, I might not have chosen speculation as a career, and that path has given me far more than mere financial rewards. It has taught me to be open-minded, patient, objective, consistent, disciplined, even-minded, and nonattached to the results of my actions. In addition, it taught me how to survive as a trader while suffering from being severely undercapitalized.

I am certain ...