The days of a lone trader manually trading the market from a discretionary account and somehow winning are long over. These days, everyone has learned that you cannot compete with a computer when it comes to the speed of execution, the recognition of lucrative patterns and the absence of emotion and fatigue.
As markets become more and more automated, even experienced discretionary traders who have trading in their blood need to at least work in concert with and supported by some very sophisticated software.
Fundamental? Technical? Quantitative?
Most of today’s trading system software is going to be technical or quantitative in nature, as people who use strictly fundamental analysis for their trading – like Warren Buffet – simply do not need a trading system. Their frequency of trades are lower and when a position turns against them, they will buy more of a stock that they have identified as a buy – a strategy which is anathema for a technical trader; they are not allowed to “average down” for the most part.
Up until very recently, technical analysis was regarded as rubbish by many – and they had the irrefutable evidence of none other than Warren Buffet who nary said a word against technical analysis – he simply ignored it, never used it and despite that had been able to create one of the world’s largest fortunes built upon trading in stocks. There was not a soul that anyone could name who made even half as much using technical analysis.
Now of course, we all know about Professor James Simons – an American professor of mathematics who retired from academia to found some highly successful hedge funds that trade using quantitative methods – while some may dispute whether or not these methods are ‘technical’ per se, they certainly are not ‘fundamental’, therefore Professor Simons relies upon market pricing data and ignores the fundamentals of the business. There simply is no other way, his average trade lasts a mere 15 minutes! In such a system, fundamentals are totally irrelevant. If Professor Simons winning streak holds out just another four years, he will surpass Warren Buffet in wealth by using technical means.