Develop The Perfect Trading System–Nelson Freeburg Tells You How
Editor’s Note:
The following is an interview done by Dave Goodboy in conjunction with
RealWorldTrading.com.
After you read the interview, talk about it
here.
Brice
Hi, My name is Dave Goodboy, I
am executive producer of Real World Trading. This week I had the pleasure of
interviewing, Nelson Freeburg. Nelson is a renowned trading systems designer
who counts many world-class systematic money managers as clients, including,
Paul Tudor Jones. He publishes the popular Formula Research letter that focusing
on trading system development and is truly on the cutting edge of this field.
This interview will step inside his mind to see what we can learn. Let’s get
started!
Dave: Welcome to Real World Trading, Nelson
Nelson:
Thanks, it’s a pleasure!
Dave: Let’s start at the beginning. What first got you interested in
trading system development?
Nelson:
Almost no one in the field of systematic trading started out as a trader. Even
some of the best known names in the profession began in different fields.
Gerald Appel was a psychiatric social worker. Martin Zweig was a professor of
academic finance. The late Bruce Babcock, who popularized dozens of mechanical
timing strategies, was an assistant district attorney (who helped prosecute
Charles Manson).
Wow, that’s a shocker. I would
have never guessed that is the case. Charlie Manson, the market? More
similarities than we would like to admit! (laughter all around).
Seriously, did researchers from these diverse fields reach any common
conclusions?
Nelson: When all of
these people eventually turned their attention to money management, they reached
a common conclusion. Buy-and-hold investing simply does not work. There may
be periods when the stock market goes straight up. But the good times are
offset by frequent bear markets.
Dave:
How do the systematic traders earn more than simple
buy-and-hold strategies?
Nelson: One way to
capture the gains and avoid the risks is to use conventional technical
analysis—