Government Interventions

Lenin by ~Belotaurus
Lenin by ~Belotaurus

A sense of worry about the many negative unintended consequences of recent actions has come over me. Perhaps it has something to do with receiving “healthy” doses of government propaganda during my ten years in the Soviet Armenian school system. I can still remember the brain-cleansing we had to undergo about how Comrade Lenin loved children and how Comrade Stalin also loved children and how many cubic tons of iron ore were required to meet the five year plan of the… In the name of the taxpayer much change is being proposed. I thought corporations also pay taxes. Perhaps, it is the collapse of the Soviet Union which taught me so many lessons. Even today, I remember vividly the day when we heard about the massacres in Sumgait in February of 1988. In my memory, this was the event that sparked the collapse of a dark era started by the events of 1917.

It seems that people forget that to grow anything meaningful in a garden, the soil must be rich with humus and at the right acidity. It seems they forget that once something is planted that the ground and the roots should not be disturbed. What business does Congress have in passing a 90% tax on anything? Given things stay roughly the same, I am sure the economy will get better sooner or later. The challenge right now is that nothing is a given.

For people who trade via systems, I have a question. At which point does one decide to:

  1. modify the system (and to what degree and based on what)?
  2. discard the system (and why)?
  3. continue relying on the system (and for how long); if such a system is producing losing trades more recently but has worked fine for a long time (definition of time scales not relevant)?

Perhaps the answer contains clues regarding our recent government actions (and market reactions) where the scale of the system and the magnitude of its impact is great. The problem is further complicated by control over one’s actions but lack of control over [negative] consequences of those actions in human systems.

The second question that does not leave me alone is whether a game of chess (or any other game) can be won if after every few moves, the game rules are modified. Does the player quickly adjust and remain focused on winning the game according to the new rules (“queen can only move three squares at a time” for example) or does the focus shift on guessing what the next set of rule changes may be? After a few sets of changes and corresponding adjustments, does the player begin to suspect the rule maker in “supporting” the other side?


  1. Congress has “every right” to pass a 90% tax on anything. Thats what the people of this country elected them to do. I won’t get into the Democrat vs. Replublican argument (even though I am a fervent Republican), but rather will propose an idea: “Are not these types of decisions exactly what the people of your fair city revolted against in the Harbor of Boston with the “Tea Party”. There are alot of people “upset” and more truthfully “pissed” right now at the actions of the government in almost every arena. I love this country and was raised that we are a nation “under God”. Well we are travelling a slippery slope these days and many of her citizens, including myself, are expressing our views whenever we can. My Representatives and Senators are contacted regularly. You elected this Government. Scream at them when they don’t do what you like. If the screaming doesn’t work go a step further and further until they begin to listen or they can’t listen anymore. If not for your sake for your two beautiful children’s.

  2. Thomas – I love this country very much and write to our representatives weekly. I agree with you regarding the slippery slope and hope that they will not make enormous decisions in haste as the ramifications are so vast for some of these changes I cannot even begin to comprehend them. Elsewhere, George points out that “[government intervention]’s not changing the game – it’s PART of the game.” Therefore, the chess example above needs to be adjusted to account for the government being a powerful player with “unlimited” resources and ability to change the rules of the game. While there are many checks on such power, in crisis such checks seem to have diminished reflexive responses. There’s also the time dimension. The damage from a change can be enormous by the time the check/balance mechanism reverses the change. People need to understand that every change can create or destroy entire ecosystems. America is a great country and I have no doubt we will see these challenges in a rear view mirror soon but let us not cast doubt upon the principles that lay at its foundation.

  3. LD, I am not a very experienced systems trader, but I’ll have a shot at it:

    First of all, it is very important to understand that each system is based on a certain logic, meaning that the system exploits a certain characteristic of the market it is trading. Building a system is not about messing around with a few indicators and seeing which combination is profitable. It is a matter of observing a market characteristic and then developing a method of capturing that characteristic, thus making a profit.

    Now my answers:
    1)I am going to modify a system if I can improve it’s performance, meaning I can make it capture the characteristic it is exploiting in a more efficient way (at the same time keeping an eye on curve fitting)

    2)If the characteristic which the system is exploiting disappears, the system goes to the trash bin

    3)It is a matter of determining if there is a fundamental change in the characteristic the system is exploiting or it is just a string of bad losses. The system has certain performance statistics, which can be used to compare the current period to past ones. That means you can be in one of three cases: is just an unlucky string of losses
    b.the characteristic is changing (the system needs to change as well)
    c.the characteristic is disappearing (the system is going to the trash bin)

    Hope that helps 🙂

  4. ld, not sure if I can add any value, but I’ll take a crack regarding trading systems.

    1). I personally try not to mess with a system once in production mode. My reasoning is that I may see something in production mode that looks like it would be better or more efficient, but this leads to fitting the system to the data. When this happens the chance of it working long-term diminishes greatly.

    2). I just discarded a system not too long ago because it deviated from the historical “norm” in a way that I thought proved it to not be viable anymore (based on a number of statistics). I had wanted to dump it for a while as it did not fit in with the way I usually develop systems, but I was running it because it was working, not because I thought it was long term viable. Rocky would probably be able to expand on this point in a much more eloquent manner than I.

    3). If I have designed what I believe to be a long term viable system I will give it plenty of time to work itself out (plenty of time to me means roughly 6 months depending on the situation). Over the quarter I track the percent profitable and win/loss ratio as two measurements of current vs. historical performance. Historically most of my systems have a pretty low percent profitable so if it goes much lower and stays there for a period of time that is one way I know to can it. In my mind the trick is to test the systems over a variety of market conditions in order to have a level of confidence that it can perform going forward regardless of the current conditions. I am fortunate that I have not had to do this too often, but it is one way I decided to continue to give a system time to “work,” or throw it out.

    Like I said I get the impression that Rocky could probably expand on this as he made some great points on a post at my site.

  5. MDan and Sam – Thank you both for your comments. Your responses have helped illustrate my point above about intervention into an existing working [human] system. I am sure you would agree that a system of laws (and as a result the associated strings that encourage or discourage our behaviors) are far more complex than any trading system but I believe the basic principles are not too far apart. Take a look at this list of interventions to get an idea of the magnitude. Thanks again!

  6. “Where Fools rush in, Angels fear to tread”.

    Why not hire consultants from the old USSR or mother Russia to help sort all this out. They have the experience we need. After all Satan was an Angel, just a fallen one.

  7. LD, there is one more very important point that I forgot earlier.

    You have to pull the plug on a system if it is not acting the way you wanted it to act when you designed it. If you can modify it in a way that it can be made to do what you want it to do (capture a characteristic), you can have another try, otherwise it is going to go to the trash bin 🙂

    Jeff and Sam have some very good points as well.

  8. MDan,

    Just because a system stops working doesn’t mean it should ever be discarded. The law of ever changing cycles will make systems work, stop working, then work again. If one can get as much computing power as possible, they can run many systems concurrently…I personally run about 400 systems in the background with statistical crunching of each system in real time. This helps to identify the ever changing cycles and offers a degree of predictability of the cycles. While this might work for me, everyone has their own needs and what works for me might not work for you.

    LD, Thanks for posting that i-Phone Kindle app over at Daily Speculations. I downloaded it immediately after reading your post…..great work and Kudos to you.

  9. Jeff, I have noticed that most characteristics fluctuate between better and worse periods, but I was assuming that once they start going worse and worse they would disappear permanently at one point. After all, markets are supposed to become more efficient by the day, as most academics would argue.

    Well, academics would rather understand the market than make money. I would rather make money, so I’ll go with your view that markets are ever changing along the lines of different themes. It certainly makes more sense.

    400 systems? Wow. I only trade one system on 2 different time frames. I am working on my second system right now. I have some catching up to do 🙂

  10. I think it safe to comment here now…


    ***On governing, the old rogue (LaoTzu) had this warning:***

    [29] Warning Against Interference

    There are those who will conquer the world
    And make of it (what they conceive or desire).
    I see that they will not succeed.
    (For) the world is God’s own Vessel
    It cannot be made (by human interference).
    He who makes it spoils it.
    He who holds it loses it.
    For:Some things go forward,
    Some things follow behind;
    some blow hot,
    And some blow cold;
    Some are strong,
    And some are weak;
    Some may break,
    And some may fall.
    Hence the Sage eschews excess, eschews extravagance,
    Eschews pride.

    ***Here, he opines on the art of government, from the perspective of vacuity/substance, potentiality/actuality:***

    [57] The Art of Government

    Rule a kingdom by the Normal/Orthodox.
    Fight a battle by (abnormal/unorthodox) tactics of surprise.
    Win the world by doing nothing.
    How do I know it is so?

    Through this: –
    The more prohibitions there are,
    The poorer the people become.
    The more sharp weapons there are,
    The greater the chaos in the state.
    The more skills of technique,
    The more cunning things are produced.
    The greater the number of statutes,
    The greater the number of thieves and brigands.

    Therefore the sage says:
    I do nothing and the people are reformed of themselves.
    I love quietude and the people are righteous of themselves.
    I deal in no business and the people grow rich by themselves.
    I have no desires and the people are simple
    and honest by themselves.

    ***Who then, shall we entrust to as our leaders?***

    In loving the people and governing the kingdom,
    Can you rule without interference?

    (Therefore) he who values the world as his self
    May then be entrusted with the government of the world;
    And he who loves the world as his self –
    The world may then be entrusted to his care.

    ***And last but not certainly not least, Thoreau’s paraphrase of a founding father from his Civil Disobedience***

    “That government is best which governs least”



    And as for modifying, discarding or relying on systems, (whether they be used for trading, econometric/’psychohistoric’ forecasting a la Seldon, picking leaders or directing wars):
    I guess some human ‘tweaking’ will always be necessary…

  11. Don – As usual there’s a lot in your comment. Quite a few of the lines resonated with me but one [I love quietude and the people are righteous of themselves.] took me back to my childhood trips to my father’s village where simplicity and pure humanity were the norms but perhaps those were my eyes seeing the world in beautiful colors or my memory discarding all that is bad along the way.

    The other part about “eschews excess, eschews extravagance, eschews pride” is how I try to live my simple life longing for nothing but time.

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