How can a mechanical trading system make money year after year?
There are basically two approaches to analyze the market direction. The first is the analysis of the fundamentals, or news . A trader would look at the supply and demand information and make a decision based on whether there is more supply (price goes down) or more demand (price goes up). An inherent problem in the fundamentals approach is that one side of the equation is usually known before the other side. For example, you may know what the yield will be for this year s soybean crop, but not know what the demand will be until months later when the crop is harvested. I have a personal friend who is a broker with Refco Commodities, a commercial clearing house for hedgers. Hedgers are usually the farmers who sell the commodity or the end user, like General Mills, who process the commodity. If anyone would know the fundamentals, these people would. My friend told me how it really is in the hedger’s trading world. Hedgers very rarely know where prices are going and are just happy to keep
