How did you get management to support you to that extent? They were familiar with Richard Donchian, who was a pioneer in developing trend-following trading systems,
although, at the time, he was doing everything by hand. Because of that exposure, they were already favorably
disposed to the concept of using trading systems to manage money. Also, at the time, computers were so new that
"computer system" was a great buzzword.
How did your trading program do? The program did fine; the problem was that management couldn't keep from second-guessing the signals. For
example, I remember one time the program generated a buy signal for sugar when it was trading around 5 cents.
Management thought that the market was already overbought and decided not to take the signal. When the market
kept on going higher, they came up with the rule that they would buy on the first 20-
point pullback [ 100 points equal
1 cent]. When no such pullback developed, they modified the rule to buying on the first 30-point reaction.
As the market kept moving higher without any meaningful retracements, they changed the rule to 50 points
and eventually 100 points. Finally, with sugar prices around 9 cents, they finally decided that it was a bull market,
and that they had better buy before prices went much higher. They put the managed accounts long at that point. As
you might guess, the sugar market peaked shortly thereafter. They compounded the error by ignoring the sell signal
as well—a signal which also would have been very profitable.
The bottom line was that because of this interference, the most profitable trade of the year ended up losing
money. As a result, instead of a theoretical return of 60 percent for the year, quite a few accounts actually lost
money. This type of meddling was one of the main reasons why I eventually quit.
What were the other reasons? Management wanted me to change the system so that it would trade more actively, thereby generating more
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commission income. I explained to them that it would be very easy to make such a change, but doing so would
seriously impede performance. They didn't seem to care.
