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The real 10 algorithms that rule the world.

  
Analysis, Education

What is an algorithm?

Informally, an algorithm is any well-defined computational procedure that takes
some value, or set of values, as input and produces some value, or set of values, as
output. An algorithm is thus a sequence of computational steps that transform the
input into the output. Source: Thomas H. Cormen, Chales E. Leiserson (2009), Introduction to Algorithms 3rd edition.

In simple terms, it is possible to say that an algorithm is a sequence of steps which allow to solve a certain task ( Yes, not just computers use algorithms, humans also use them). Now, an algorithm should have three important characteristics to be considered valid:

  1. It should be finite: If your algorithm never ends trying to solve the problem it was designed to solve then it is useless
  2. It should have well defined instructions: Each step of the algorithm has to be precisely defined; the instructions should be unambiguously specified for each case.
  3. It should be effective: The algorithm should solve the problem it was designed to solve. And it should be possible to demonstrate that the algorithm converges with just a paper and pencil.

https://medium.com/@_marcos_otero/the-real-10-algorithms-that-dominate-our-world-e95fa9f16c04

Richard Dennis – Market Wizard (Must Read )

  
  Education
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On the right psychological mindset:

For a lot of traders, it doesn’t matter so much whether their first big trade is successful or not, but whether their first big profit is on the long or short side. Those people tend to be perennial bulls or bears, and that is very bad. Both sides have to be equally OK. There can’t be anything psychologically more satisfying about one than the other. If there is, your trading is going to go askew.

On taking losses:

Since then, I have learned that when you have a destabilizing loss, get out, go home, take a nap, do something, but put a little time between that and your next decision. When you are getting beat to death, get your head out of the mixer. Looking back, I realized that if I had had a trading rule about losses, I wouldn’t have had that traumatic experience.

 

You mentioned that before you developed a mechanical trading system, you paid close attention to the trading process. Did you keep a log of what you did right and wrong, or was it a matter of memory?

Yes, I would write down observations and think about them. I thought about everything I was doing.

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