By Griffin Cooper

“There are certain problems -and it’s all the ones that involve people, it turns out- that cannot be reduced to formulas. There is a certain irreducible complexity in social interactions, and the marketplace is nothing but one giant interplay of social values and time horizons and assumptions.” Dr. Ken Long

Principles I have for using data responsibly:

• Data describes, it does not predict

• I will never have enough data to know for certain anything in the market

• When dealing with uncertainty, I need to act first in order to learn (“the lesson comes after the test”)

• Act in a risk-controlled way, and don’t take any risk I don’t have to

• Use simple calculations of data to build efficiency and trust in my process

Using data in trading is a fascinating experience for me. Like many things in life, I believe it’s the art of striking a balance. I need data in order to trade and in order to analyze my trading results. You could say the whole process of trading and financial instruments can be reduced to data points. It is just price, after all. But what’s so interesting to me is that I know from experience it’s not always about more data.

The act of data acquisition has to be grounded in a few important principles. If it’s not, I can fall into the trap of expecting my data to always be perfect, or God forbid to be some kind of predictor of what’s going to happen next.

One of the principles I have learned is that when using data in trading, I get to remember that I’m using data to describe an imperfect world that is filled with uncertainty. I once heard Dr Van Tharp say in a workshop that you can never have enough data. He didn’t mean that I can always collect more data. He meant that no matter how much data I collect, it’s still never going to be enough to know anything for certain. It’s simply a description of what has happened, and anything can happen in the future.

Another important principle that I learned and have carried well outside the realm of trading is Dr Ken Long’s statement that when dealing with uncertainty, I need to act in order to learn. Put another way by Tom Hougard, “the lesson is after the test”. This has been one of the key beliefs that has helped my trading so much because it cuts right to the erroneous beliefs and pitfalls that can result from perfectionism in trading. What is there to be perfect about? It’s already imperfect, uncertain, always changing and anything can happen. The best I can do is to take calculated risks in a safe way. It’s a willingness to act in a safe way, because I have enough humility to know I don’t know what’s going to happen next. The willingness to act in the face of uncertainty in a safe way is what it’s all about for me. It’s only by taking that leap of faith and acting that I can learn, from both my successes and my failures.

This kind of acting has naturally and organically led to continuous improvement. I know that things are always changing in the markets, and I’m always changing with them. That’s really the secret sauce to me. I used to believe there was a certain system or methodology that would figure it all out and take care of me. But that’s a pipe dream. I take responsibility for my actions today, and I don’t take any risk I don’t have to.

From a practical point, looking at data of my trade results helps me see what needs to be improved. I’m always tweaking the variables of my methodology in response to small sample sets of live trade data. This way I give my edge enough time to play out while also improving on areas that have fallen out of sync with the market or myself. This is how I have been taught by Dr. Ken Long to constantly adjust to a dynamic market.

I have found that the respect of data can also help me to make tentative conclusions, not just about my own trade results, but also as a way to objectively analyze and compare different financial instruments. I use data calculations as kind of a fixed point, so I can easily compare different symbols for certain characteristics. This helps me to learn to trust data in a realistic way and also builds efficiency and trust in my processes.

Here’s a daily chart of several symbols that are all in a strong uptrend for a hybrid system I am researching.

It took me about five seconds to find these symbols on Sunday. How? Data! I applied the calculations we used for our blended monthly rebalancing system to find the top three symbols for three different long-term portfolios. I knew that the formula for the blended monthly rebalancing systems use a simple blend of the 3-month and 6-month percent change performance of a group of symbols. It’s a great way to rank a set of symbols and quickly find what is outperforming its peer group. I’ve also found it’s an excellent way to find symbols in a strong uptrend on a higher timeframe like the daily charts.

Since all of these symbols were at the top spots of their portfolio, I was able to draw the tentative conclusion that most would all be in good uptrend. Between the various portoflios I’m using, there’s 97 symbols to choose from. Instead of having to look through 97 different charts, I was able to find the strongest symbols in a few seconds by using data to make a tentative conclusion. Not only is this more efficient, but also it helps me stay focused on my task. When I start looking through dozens of charts, I’m bound to find something that gets me interested, fires that dopamine in my brain, and I’m off track on some tangent because I found some chart pattern interesting. This use of data keeps me focused and on track, which is essential for me.

Happy Trading!

Griffin Cooper