I agree with the fact that it's very unlikely that I can develop a mechanical system that would beat algorithmic trading. The good news is that I don't have to. That's why I'm a discretionary swing trader. In my personal case, trading is about learning how to fish. Learning a non computer skill that I can use for the rest of my life.
Even if it sounds cruel. With enough time and hard work, you can train yourself to detect the pigs getting slaughtered by the professional traders and take a bite of the action. That's what swing trading is all about.
That being said, it's far from easy. It requires a lot of hard work and determination. Reading books is a good start. The book "Trading Your Way to Financial Freedom" by Dr. Van K. Tharp is required for any modern day trader. The most important lesson from the book is probably that you have to always go into a trade knowing how much you are willing to loose on that trade. Using a stop and respecting it should be deeply engraved into your DNA.
But reading books is not enough. Getting a proper trading education is important. The average trading course will cost you anywhere from $2,000 to $5,000. With so many get-rich-quick schemes on the Internet is hard to find a serious an respected trading education program. They are out there. A good place to start would be Trader Planet. They have a list of the Top Trading Schools.
Why pay so much for a trading course? Because in the long term it will save you time and money. In the book "How I made $2,000,000 in the Stock Market" by Nicolas Darvas. The author spent many years of failure paying tuition to the markets until he found his way. Many people read this book and get fascinated by the big number. The fascinating part about the book is that in the 1940s and 1950s this guy created his own form of pseudo technical analysis. That system is what made him the $2,000,000. He spent a lot of time an money developing the system and eventually worked out for him. Keep in mind that Moving Averages started to get used in trading in the 1960s (If I'm not mistaken).
The moral of the story is that spending $2,000 or $3,000 in advance for a proper trading education will save you a lot of time and money.
People with little or no trading experience should not be developing mechanical systems and use them to risk real money. Wanna do it for educational purposes, sure go ahead, but don't risk any money. That shouldn't stop you from diving into the markets though. Once the market bug bites you there's no turning back. You just have to do it the old fashion way. In my case, by reading charts. As a software developer I think technical analysis is the only way to study the markets because that's how my brain is wired.
I'll put it this way: I went to a top business school (which cost a lot more than $3000), and my finance professors were former traders, federal reserve governors, investment bankers, algo traders, etc. Without exception, they recommended a buy and hold strategy for non-institutional investors. Buy companies you believe in (or better yet, index funds), and hold them until you need the money. And this was in classes where they were teaching us investment strategies! The game is rigged against you; as an individual investor your information will always be 3-5 seconds out of date, and your trades will get thrown in the back of the queue behind the institutional investors. Any strategy that relies on market timing is doomed before you even start.
Professional traders (hedge funds, etc) can get away with risky strategies because they're balancing risk. For every insanely risky, 30x leveraged trade they make, they also hold metric fuck tons of US treasuries. You also never invest in one hedge fund; you invest in 30 or 40 hedge funds because most will lose money. The guys running the funds make their money off of fees because the return of the funds is usually based on economic factors more than 'alpha'.
Trading has changed a lot since the 40s and 50s. Modern finance wasn't really invented until the 80s as the relationship between debt and equity became much more fluid. If you really want a proper investment education, I would suggest a real education in the form of a computational finance degree as offered by many of the top quant business schools (CMU, MIT, etc.) There you can learn about the leveraged trading strategies that HFTs and algo traders use, why they work, and how to exploit them.
The big traders have a word for individuals who try to beat the market: suckers. There is no arbitrage, and even when there is, someone else will beat you to it because your access to the market is inferior to theirs. It's fundamentally unfair, but it's what happens when you have a revolving door between the federal reserve, the SEC and the top investment banks. You're playing a game with asymmetric information from the losing position against very skilled players. If you beat them, it's dumb luck. You're not going to be able to do it consistently.
The guys hosting seminars on investment strategy have found a way to consistently make money: by hosting seminars on investment strategy and charging $3000 to $5000 to attendees. If they had a truly ironclad way to make money consistently in the market, they wouldn't need the money from the seminars because they would be pulling in tens/hundreds of millions a year running a hedge fund or prop trading group.
Even if it sounds cruel. With enough time and hard work, you can train yourself to detect the pigs getting slaughtered by the professional traders and take a bite of the action. That's what swing trading is all about.
That being said, it's far from easy. It requires a lot of hard work and determination. Reading books is a good start. The book "Trading Your Way to Financial Freedom" by Dr. Van K. Tharp is required for any modern day trader. The most important lesson from the book is probably that you have to always go into a trade knowing how much you are willing to loose on that trade. Using a stop and respecting it should be deeply engraved into your DNA.
But reading books is not enough. Getting a proper trading education is important. The average trading course will cost you anywhere from $2,000 to $5,000. With so many get-rich-quick schemes on the Internet is hard to find a serious an respected trading education program. They are out there. A good place to start would be Trader Planet. They have a list of the Top Trading Schools.
Why pay so much for a trading course? Because in the long term it will save you time and money. In the book "How I made $2,000,000 in the Stock Market" by Nicolas Darvas. The author spent many years of failure paying tuition to the markets until he found his way. Many people read this book and get fascinated by the big number. The fascinating part about the book is that in the 1940s and 1950s this guy created his own form of pseudo technical analysis. That system is what made him the $2,000,000. He spent a lot of time an money developing the system and eventually worked out for him. Keep in mind that Moving Averages started to get used in trading in the 1960s (If I'm not mistaken).
The moral of the story is that spending $2,000 or $3,000 in advance for a proper trading education will save you a lot of time and money.
People with little or no trading experience should not be developing mechanical systems and use them to risk real money. Wanna do it for educational purposes, sure go ahead, but don't risk any money. That shouldn't stop you from diving into the markets though. Once the market bug bites you there's no turning back. You just have to do it the old fashion way. In my case, by reading charts. As a software developer I think technical analysis is the only way to study the markets because that's how my brain is wired.