Vertical Solutions

Notes on trading system design and the pursuit of automation

Why Successful Traders Regress to the Mean, 01/20/06

Why Successful Traders Regress to the Mean:

The market changes a little bit every day (the principle of ever-changing-cycles),

The average trader's tendency towards stasis is directly proportional to success ("it made money last year..."),

Then combining the tendency of the successful trader to stasis while the market is changing produces the inevitable fall - the regression to the mean.

One way to combat stasis, is the development of new anomalies combined with the development of new forecasting techniques and daily developmental trading against the new anomaly to focus and accelerate development.

Regrardless of the technique, stasis and ever-changing cycles demand continuous improvement in an evironment of continuous change.

Henry Carstens
Vertical Solutions
carstens@verticalsolutions.com