Trading Interview with Michael Harris

Interview with Michael Harris

"I think that it is hard to succeed without a detailed trading plan. I have my own very specific, complete and detailed plan that works for me."

** Trading Plan **

Q. We could spend days comparing technical and fundamental analysis, and many traders tend to favour one and dismiss the other – do you prefer one over the other? Do you use a combination of both? Briefly, why?

I prefer technical analysis because my trading is very short-term and it is difficult to use fundamental analysis in that time frame. However, traders should use what works for them. Both methods have certain advantages but also serious limitations one must be aware of before using them.

Q. Do you have written trading plan detailing your approach? How would you describe it (e.g. long/short, detailed/broad, complete/work in progress)?

I think that it is hard to succeed without a detailed trading plan. I have my own very specific, complete and detailed plan that works for me. In a nutshell, every night after the market close I update a database of historical end-of-day prices and then I generate files for the program I use in my trading, APS Automatic Pattern Search. I let APS run for about 3 to 5 hours that it takes to generate the output for the markets I trade. The output consists of specific entry and corresponding exit signals. I then analyze the probability of these signals using a proprietary algorithm and I write down any orders I must place for next day. I maintain a trading log with details of every action I take and notes about price behavior.

Q. On a scale of 1 (simple) – 10 (complex), how would you rate your trading approach(es)? Do you have any comments on the simplicity or otherwise of them?

I think this is an important question. Besides simplicity and complexity being fairly subjective terms and relationally measured, it is often true that the end result may appear simple but the process that generated the result may be extremely complicated. Prices can only go up or down over time, there are just two possibilities, but the process that determines the final outcome is so complicated that is beyond the ability to quantify, or even approximate. So my answer to this question is simple for the output and complex for the process, just like the market itself.

Specifically, I use price patterns to trade, which are very simple technical indicators because they are based on actual chart formations without any modification, averaging or filtering. Thus, I rate them with a 2 or 3 on your scale. But the process via which my programs determine if high profitability price patterns have formed in the data is complicated. It employs data mining algorithms amongst other things. Thus I rate the process with a 7 or 8. I think that if you use a very simple method at the end of the day other traders will outsmart you. If you use a very complicated method you may end up missing many opportunities. Complexity and simplicity are opposites and where their paths meet that is the point that offers the greatest potential and thus I have chosen to seek for that kind of a compromise in my trading techniques.

Q. Many traders acknowledge that having a trading plan is a key to success – it is essential. Yet, most people don’t know where to start to begin writing one, even though they understand the basics of trading. What would be your advice to someone stuck in this situation?

You cannot teach a child to solve quadratic equations before learning at least elementary arithmetic. A trader must have enough experience before developing a trading plan. On the other hand, many have the experience but have not realized the need to organize it in a trading plan and can use professional advice. However, to offer advice I must know the details because every case is different.

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