In a couple of weeks I will be giving a keynote talk at the a "2010 Summit on High Frequency Trading and Quantitative Strategies". Yesterday we had a conference call for the pre-keynote "Man vs. Machine" panel I will also be participating in and one person argued vehemently for a 100% quantitative strategy to which I said - "there is no such thing". He said he has spent his whole career developing systems and I wanted to point out that if there were truly a "No Man" trading strategy, he would have developed his first one and then had no career...

I wasn't trying to be flip but rather I wanted him to see that even with his models and algorithms, he still uses his judgment.

The complexion or personality of a market changes... and when this happens, volatilities change. When volatilities change, there is either more or less to be had from a particular type trade or the time to get it changes dramatically.

The same applies to discretionary trading ... we tend to get stuck in the market of yesterday. This is natural but it is a pitfall to consciously be on the lookout for ... what has changed and how does my strategy, tactic or expectation need to change because of it?

This is true on all times-frames .... for almost 14 months we have one character of market that followed a different personality that had lasted ... well depending on how you count at least from August of 2007. We might now be entering a new phase. (Fwiw I find that knowing the ATR- or average true range - on different time frames keeps me in tune with whatever loop there is) ... but the point is, if you think you are 100% quant, you aren't - because you judge your model factors and you adjust when things go wrong. If you want to be 100% "plan", you can't... because of two reasons - 1) Markets change and MORE IMPORTANTLY .... 2) YOUR BRAIN KNOWS YOU ARE IN UNCERTAINTY ... not quantifiable risk.

I don't care how many experts I am disagreeing with... I know what my brain - and yours - and those who have been studied - do under a microscope ... we fill in the blanks and the uncertainty with meaning. If we aren't aware that that is the process of human judgment - and the skill we still have over machines - then how can we leverage it?

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