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.