My answer to Do simpler trading strategies make the psychological aspects of trading more manageable thus making th…
Answer by Laurent Bernut:
Excellent question. Complexity is a form of laziness. 1) The privilege of simplicity is that it imposes itself, even to those who do not understand its sophistication 2) Simplicity is the exact opposite of easy.
Complexity is fragile
I have met many people trading complex strategies. I have had the privilege of meeting many people with long track record. I have yet to meet trading complex strategies with a long track record.
Complexity gives an illusion of control. It is also highly specialised. So, it tends to fall out of sync. then, traders start drifting and tweaking and add one more widget instead of subtracting.
As the Great Chinese philosopher Bruce Lee used to say: ultimately, perfection runs into simplification.
Complexity is a form of laziness:
People who settle for complex solutions have not worked hard enough to simplify them. It is easy to throw another oscillator in the mix. It is simplistic to optimise for a moving average. Below is my screen, no indicator, no oscillator, nothing, just the purity of the price:
In fact, the opposite of simple is not complex. The opposite of simple is easy.
The privilege of simplicity is that it imposes itself, even to those who do not understand its sophistication. We can understand it. It intuitively imposes itself.
Simple is not rigid, it is fluid
You will know that You are on the right track when You start subtracting instead of adding to your strategy.
I started off with 9 exit conditions. Now, I have 2: trend reversal and stop loss.
I started off with 3 distinct strategies. Now, i have 1 unified strategy. It knows when to suspend trading, reduce risk. Hint: the answer is not in the Buy/Sell signal but in position sizing and rejection of small orders…
But behind this simplicity there is immense relentless kaizen. It took me years to see what was in front of me. We do not see things as they are. We see them as we are.
Simple is a way of life.
The false comfort of complexity
People are intimidated by complexity. If it is simple, they believe that anyone could do it, therefore it cannot work. Picasso once drew a picture on a napkin to a restaurant owner and then asked for an astronomic sum. He then told it took him 30 years to draw those simple lines.
People often mistake simplistic and simple. I often ear that what i do is superficial. Perfect, “let’s step into the math then” and 5 minutes down the road, they have an angelic blank stare and conclude it is too complicated.
- Stop Loss: 2nd most important variable
- Position sizing: money is made in the money management
- Exits: You have to get off the bus at some point
- Entries: vastly overrated
- Above all: clarity of purpose, of formalisation. Be specific, very specific