My Trade

Some traders say there is really no way to design a system without a knowledge of past prices or past patterns", I would like to say the following:

I used to trade newspaper headlines only. The way it worked was this: every day, I would check the headlines in a major daily newspaper (LA Times). I would also check for major breaking stories. I would look for unexpected events which would catch most traders (and people) by surprise. For example, the Tylenol scare, Valdez oil spill, large plane crashes, invasion of Kuwait, etc.* The reason I did this, was that in the past, I had observed that almost every time there would be an immediate reaction and it was generally an over-reaction.

I would track the price forward from the time of the event and when I thought the time was appropriate (my judgment call), I would fade the action (go long after bad news and a decline). Inevitably, the price would return to its original price (or almost, sometimes higher) before the event and I would get out with a profit. This worked great and I won almost every time (if price did not move at all after I got in, I would get out with only a tiny loss). The biggest problem I had with this system was that it was very boring waiting for the next news break. It was almost like what I heard a pilot say about flying an airplane, hours of boredom occasionally interrupted by moments of terror.

Now, assuming that this is indeed a system, my question is this: Is this a curve fitted system? When I entered the market, I had little knowledge of past price history or fundamental knowledge of the company or industry or commodity. I had to know the current price to figure out how many shares to buy. If it was a commodity, I had to know what the margin requirement was to figure out how many contracts to buy.

Since I did not look at a chart, I had no idea of what patterns might be there. Was this system subjective or objective or a blend? I did not use a computer or any fancy indicators, I just tried to use common sense and the observation noted above.

The main reason this system worked, I figured, was that it was taking advantage of human nature to sell (erroneously) on bad news. Others might say that it was the specialists (floor traders) controlling the market by using the news to their advantage. (Is that why major news breaks are released to the floor-brokers and floor-traders before the public?)

*Even the cold fusion announcement was no exception; after going straight up, palladium eventually returned to its original price. I did not fade this particular move because with an engineering background, I felt the risk was much too high. If cold fusion proved out to be true, (I didn't know enough physics to figure out if it was true) the price of palladium would have gone through the roof, the whole world would have been affected (dirt cheap energy) and I would have been stopped out with a loss.

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