In an exclusive interview at Cass Business School, Anton Kreil, Managing Partner at the Institute of Trading and Portfolio Management, delves into the intricacies of trading, the psychology behind it, and the future of the industry. With a background at Goldman Sachs and a stint on television, Kreil offers a unique perspective on trading, blending human psychology, technology, and market trends.
5 Key Takeaways
- Human Psychology is a Double-Edged Sword: Humans are naturally poor traders because their psychology often conflicts with optimal trading strategies.
- Algorithmic Trading is Not a Panacea: While algorithms have taken over much of the trading landscape, they are not equipped to handle extreme market conditions.
- Short-Term Opportunities are Dwindling: The rise of algorithmic trading has significantly reduced short-term trading opportunities.
- Holistic Approach to Trading: A successful trading strategy should incorporate both technical and fundamental analysis.
- Education and Community are Crucial: Kreil emphasizes the importance of education and community in trading, as evidenced by the success of his Institute of Trading and Portfolio Management.
The Human Element in Trading
Kreil starts by acknowledging the emotional highs and lows that come with trading, likening it to a “gambling addiction feeling.” However, he emphasizes that the key to successful trading is learning to suppress these human instincts. This is because human psychology often works against the principles of effective trading. For instance, the fear of loss or the excitement of a potential win can cloud judgment, leading to suboptimal decisions.
The Algorithmic Shift
The conversation then shifts to the role of algorithms in modern trading. Kreil acknowledges that the industry has become more computer-driven, algorithmic, and quantitative. However, he also points out the limitations of relying solely on algorithms. They can’t make rational decisions in extreme market conditions, necessitating human intervention. In essence, while algorithms can handle the day-to-day fluctuations, they are not equipped to navigate through a market crash.
The Changing Landscape
Kreil notes that the rise of algorithmic trading has led to a decline in short-term trading opportunities. He mentions how rental prices around the London Stock Exchange have soared as quants seek faster connectivity to beat other algorithms. This has made it increasingly difficult for day traders to compete. According to Kreil, the future lies in adopting a longer time horizon and a different approach to trading.
A Balanced Approach
Kreil advocates for a balanced approach that incorporates both technical and fundamental analysis. He argues that while technical analysis is important for timing, it should be used to complement a fundamental analysis-based strategy. This holistic approach allows traders to align all variables in their favor, thereby increasing the likelihood of success.
The Role of Education
Finally, Kreil discusses the role of education and community in trading. He talks about his Institute of Trading and Portfolio Management, which started as a series of roadshows and has now evolved into a community of over 80 traders. The institute focuses on ensuring that a high percentage of its community members are profitable, thereby validating the effectiveness of its educational programs.
- Suppressing human instincts is crucial for effective trading.
- Algorithms are useful but have their limitations, especially in extreme market conditions.
- A balanced approach that incorporates both technical and fundamental analysis is key to long-term success.
- Education and community support can significantly improve trading outcomes.
Anton Kreil‘s insights offer a nuanced view of trading, one that goes beyond the usual discussions around strategies and technologies. His emphasis on the psychological aspects, the limitations of algorithmic trading, and the importance of a balanced approach provide valuable lessons for both novice and experienced traders. As the trading landscape continues to evolve, these insights could serve as guiding principles for those looking to navigate the complexities of modern trading.
Source: Interview with Anton Kreil
Note: The article is based on an interview conducted on March 26, 2013, and the views expressed are those of Anton Kreil.