Consider the following pasaages from two different book reviews. First is an AIMR Book Review from Martin S. Fridson:
…According to Brett D. Fromson (“Wired into Wall Street,” Washington Post, December 1, 1991:H1): “Steinhardt Partners also wields considerable clout because of the fees it pays to brokers for executing its trades” $30 million in 1990. Thus, it’s not unusual for a brokerage to give him first word of a new “buy” or “sell” recommendation, which enables him to move before the crowd…Steinhardt’s access to information has engendered jealousy on Wall Street, and some competitors nodded with disapproval when he told a Wall Street Journal reporter in 1986 that he relied on “fancy information” when trading. That quote caused the SEC to question Steinhardt about what he meant, and the agency apparently was satisfied with his explanation.
Most people think the “game” is how Steinhardt describes it. People think it is rigged. But is it rigged when you can see the price action every day? Trend followers and other types of systematic traders use price cues for decisions, not “fancy news”. Beyond that, was Steinhardt lucky?
From a review unrelated to Steinhardt comes this AIMR Book Review from Mark S. Rzepczynski. Consider:
Seemingly random events at the extremes, or just those events that are unanticipated, are often the key determinants of performance – good or bad – but we often place too little emphasis on these uncertain events. When we win, we believe our victory is skill, not the luck of the draw, and when we lose, underestimate randomness and confuse noise for meaning. To stay in the game, traders have to minimize their maximum loss through expecting the unknown and random market behavior. We are fooled by randomness because we suffer from behavioral biases that make us our own worst investment enemies. We go to great lengths to downplay the rare events and place great confidence in our own abilities, which allows us the illusion of control over market randomness. Some investors eliminate outliers for the very reason they are needed: They are lowprobability events that can occur. Those rare events are often explained away with the arguments “this time is different.” Some investors undervalue the randomness associated with survivorship. The fact that a trader (or a firm) has survived for years does not automatically make that trader a master of the universe – perhaps just lucky.
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