Quant13Marco Model - Inspiration and Creation

Nearly twenty years ago, at the university, I was required to take a simulation course as part of my engineering degree. The final project that year was to model a pizza shop with various arrival and queue distributions. Modeling a real-world situation was very interesting to me. I was consumed by the project and worked on the model day and night until it was the "perfect" pizza shop. Simplicity and practicality be damned...my model was going to be the most accurate in the class. Once finished, I submitted it to the professor and got a B!

I was furious. What did I miss? It was the perfect model; how could I not make an A+? Well, I marched down to my professor's office ready to pounce. He quietly listened to my rant and then asked if I was finished. He then gave me some advice that I've taken with me since. He told me the model was "not practical." The model was very accurate, but if I were to die, no one else could use it due to its complexity. He continued to say, "You could have made something that was much simpler and still got a solution that was 'good enough." Fewer resources and less cost while still obtaining a good solution. I missed the entire point.

I've spent more than 12 years trading US equities, and I still ask myself, "What is good enough?" I'll be the first one to admit that much of my first 6 years were unprofitable. I lost significant money at times. Thankfully, I had a revenue source to back me during the times of drawdown. And no, my family is not rich or had money given to me. I worked for it.

Looking back over those years, I can sum up the reasons I lost money...

• I was under-capitalized and took too many risks. I just went big on everything.

• I had to be in the market constantly. Which means I was usually early on the idea timeframe.

• When I was early and losing, I would close the position and change strategies to something that I thought was better.

I know some people trade completely discretionary and make piles of cash.  Good for them, but I can't do it.  I need a model and some parameters that keep me on the road/in the game.  I love studying charts. What makes them move? Why do they reverse? Why do they go parabolic? Why do they consolidate? I spend every day in search of these answers and will continue until I physically cannot.

The market is my greatest simulation project, and the goal is to model it accurately. Additionally, I must also take the lessons from my professor way back when. Ensure the model is simple to update and execute.