Stocks & Commodities V. 32:1 (42-47): Interview: Designing Systems With Mike Carr by Jayanthi Gopalakrishnan

Interview: Designing Systems With Mike Carr by Jayanthi Gopalakrishnan

What’s Your Edge?

Michael Carr, CMT, is an independent trader, researcher, and writer. He is the author of two investment books, Smarter Investing In Any Economy: The Definitive Guide To Relative Strength Investing, and Conquering The Divide: How To Use Economic Indicators To Catch Stock Market Trends. His articles have been published in this magazine, SFO, Futures, Shares (UK), and Traders (Germany) magazines as well as at a number of websites.

He managed money professionally for several years, responsible for investor accounts worth more than $200 million, and was co-manager of two mutual funds. He retired from managing money to devote his full-time efforts to research and writing about the markets. He is editor of the Market Technicians Association monthly newsletter and has served on the board of directors of the MTA Educational Foundation.

Carr has been a featured speaker at numerous industry events including the MoneyShow in Las Vegas and Trader Tech West in San Francisco. He has spoken to local chapters of the American Association of Individual Investors (AAII) and professionals in the Market Technicians Association, the CFA Institute, and the Financial Planners Association.

Stocks & Commodities Editor Jayanthi Gopalakrishnan interviewed Carr on October 31, 2013 via phone and email about the components that go into creating an automated trading system.

Mike, what got you interested in the financial markets?

I started studying the markets while I was on active duty in the US Air Force. It was the late 1980s and I was working as a computer programmer. It seemed to me that it should be possible to use a programming solution to project where market prices were heading using the same logic that we were using to project where a missile would head. Neither missiles nor markets move in a straight line, and their deviations from the straight line should hold information that can help us understand where they will ultimately end up.

Fairly quickly, I discovered that markets are much less predictable than movements that are controlled by the unvarying laws of nature. Predicting the markets seemed to be impossible, but I continued to study the markets and realized that we don’t need to know exactly where prices are going in order to make a profit — and making a profit is the goal of trading. That was one of the most important insights I developed. The market really doesn’t care if I’m right or not, and I need to focus on making a profit rather than being right. Later, I would learn in talking with an old market maker that being right too often actually costs money. He explained that he made his biggest profits when he was right about 40% of the time; less than that meant he was taking on too much risk, and being right more than that meant he wasn’t accepting enough risks.