7/05/2007

Where do new ideas come from

A reader has asked how do I generate new ideas. Most of the time it is not conscious effort. But there are some broad patterns to idea generation:
  • Structural understanding of market. By now I know how the market works and what things work in market. Say for example I know that relative strength based system work. Or earnings based things work. So I don't have to test every variation of this basic idea. Amateurs have no understanding of how market works. Which hinders them from coming out with new ideas.
  • Books. I read virtually every single book published on market in a year. Sometime even in a bad book, you find a sentence or something, which triggers a new idea. In recent months I have started getting lots of books for free from publishers or writers in the hope that I will review them. So that is intangible benefit of blogging.
  • Study of snake oil. There are vast number of commercially available systems. I have studied most of them. I also keep tab on new snakeoil appearing in market. Many times you get ideas from bad systems or methods.Study of some popular cast of characters who dominate the trading seminar and conference industry circuit. If you noticed same set of characters are permanent fixtures in any Trading related events. You can learn few useful things from them, but most of them are overexposed, few tricks gurus, with something to sell.
  • Systematic study of 100% plus returns traders. In various books and magazines you will find genuine cases of traders who for some periods in their career had triple digit returns. I have over the years built a small database of such peoples techniques. While not everything is in public domain about their method, lot of it is and in some cases, I have directly contacted them and got some helpful hints. e.g. Some years back I had a long chat with an ex girl friend of a market wizard, who has one of the best track records. She herself is a trader and so I got to know many details of the techniques used by that secretive trader. Also in most cases I have found if you approach people politely, they give you enough hints. I am never afraid to contact a market wizard.
  • A vast database of over 17000 pages of snippets and web pages I have collected over the years of various systems, software, trading approaches etc.
  • Blogs. I study all trading related blogs to figure out what method is the person using.
  • Blog readers. On a daily basis, I get lot of ideas from readers of this blog. Many send in their own successful methods. Some have vague ideas but can not translate them in to trading methods, so I pick and adopt some of their ideas. Readers also send me copies of newsletters they subscribe to. They want second opinion. So I get to see others thinking without paying money for it. There is vast amount of conversation about market which happens in background. On an average day I get 50 to 70 emails from readers of various levels of skills and knowledge about market. Sometime some very experienced people and readers give you some hints. Currently there are many collaborative research projects and new ideas/ softwares jointly being developed by few readers. In such projects I do not share those systems with others. So there are many more things I know and trade which are not in public domain.
So all these things ensure the mental pantry is full stocked with ideas all the time. While I continue to look for new ideas, most of my trading is focused on few key methods. Episodic Pivot is the most important and profitable method which I trade. Other methods are supplemental methods. Most of the existing methods I trade are well set so there is not much effort involved besides entering orders and stops and closing position.

The objective of new idea generation is to ensure that one remains one step ahead of the market.
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