The Logical Trader
by Mark. B. Fisher

Jul 2005

All about structure

I picked up The Logical Trader on the strength of the foreword. Paul Tudor Jones has added this to the short-list of books he recommends to new traders. Since PTJ is one of my earliest and strongest inspirations, such an endorsement is impossible to ignore.

I have not adopted the ACD system—my methodology and market philosophy stands on its own two feet—but nor did I expect to. Instead the book proved worthwhile, as I suspected it would, from a different angle: it serves as further validation of the core principles behind successful trading, and it underlines the fact that, even for the best of the best, there are no magic secrets hidden away. (Okay, Jim Simons over at Rentech is sitting on a pile of arcane equations that non-PhDs have little hope of understanding; but 'high frequency finance' aside, the wisdom still applies.)

As PTJ noted in Market Wizards, all forms of trading are ultimately systematic. Every human decision is based on some form of logic, conscious or otherwise, even if the `logic' in question is nothing more than base fight-or-flight response. So when you think about it, a trader really has three options when it comes to developing a methodology:

1) He can hack away and reinvent the wheel on a regular basis, making arbitrary decisions over and over without examining them or even being consciously aware of them. This is otherwise known as beating your head against the wall.

2) He can develop a system `in his head' through years of trial and error + costly experience, purging mistakes through sheer repetition and dogged determination. This is learning the hard way (maybe the hardest way), unless one has the good fortune of an excellent teacher / mentor at hand.

3) He can consciously commit to the development of a robust 'system'—be it discretionary, mechanical or a blend of both—recognizing the need for structure and articulated reasoning. Through a deliberate process, mistakes are analyzed and rules reviewed with an eye for consistency and improvement over time, allowing the methodology to evolve into something sound and useful.

Mark Fisher's gift, in addition to the ACD system itself, is clarifying by example how vital it is for a trader to reach level three. In creating a flexible structure and abiding by a clear set of rules, the discretionary trader ultimately finds himself liberated. As good brakes on a Porsche enable more speed on curvy mountain roads, intelligent trading guidelines enable more freedom and versatility rather than less.

Why? Because when the method of operation is defined and systematized, the core elements no longer require conscious thought (or very little conscious thought) to execute in real time. Given enough familiarity and conviction, the basic workings of the method no longer take up valuable real estate in the conscious mind; instead, the rules are 'unpacked' into the vast airplane hangar of the subconscious.

With the conscious mind no longer burdened by a need to reinvent the wheel / make arbitrary decisions / create structure on the fly, stress levels go down and awareness levels go up. It becomes easier to pay more attention to subtleties, take in more information, analyze more markets, engage in further R&D, or simply trade in a more relaxed and confident way.

Contemplating one's methodology this way, and recognizing the need for internal structure as well as external understanding, is a big step for most traders. With The Logical Trader, Mark Fisher does more than provide the guts of a successful system. He removes some of the mystery in understanding how great traders approach markets, and puts many of his readers on a more fruitful path.