Although most (and maybe all) of the trading principles discussed in this book are timeless, trading strategies and methodologies need to adapt. When I asked Colm O’Shea if there were specific trading rules he followed, he replied, “I use risk guidelines, but I don’t believe in rules that way. Traders who are successful over the long run adapt. If they do use rules, and you meet them 10 years later, they will have broken those rules. Why? Because the world has changed. Rules are only applicable to a market at a specific time. Traders who fail may have great rules that work, but then stop working. They stick to the rules because the rules used to work, and they are quite annoyed that they are losing even though they are still doing what they used to do. They don’t realize that the world has moved on without them.”
Traders who are successful over the long run adapt.
Edward Thorp provided a perfect example of how successful traders adapt. Among the many firsts Thorp achieved in his long career, he was the first to implement statistical arbitrage as a strategy. Statistical arbitrage is a type of market-neutral strategy in which portfolios are constructed consisting of large numbers of long and short equity positions, balanced to minimize market directional moves and other risks. The strategy will go long ...