Dismantling complexity

After a short break, Moritz made a return to the Systematic Investor Podcast series. We spent the entire episode answering some really great questions from our community, and touched upon a wide variety of topics from the volatile price action in Lumber and how a trend following model have handled this... to the relationship between fees and volatility. Thank you for sending these questions and, yes, keep them coming!

Today I would like to expand a bit more on a small part of my conversation with Moritz, which touched upon the topic of complexity. Time and time again on the Top Traders Unplugged podcast, we have repeated the mantra that simplicity is king and committing to a more complex model should only come when there is a clear evidence of substantial improvement in risk adjusted performance.

But mantras are one thing, the real life is another. Even the most successful traders out there, those who now preach the benefits of simplicity, have certainly had their periods of adding unnecessary complexity to their systems.

Take Moritz for example. In this week’s episode, Moritz openly spoke about his trend-following journey:

“I started knowing nothing about Trend Following (…), I tried to understand the simplest things, and even those things appeared complex initially (…). Once I grasped these ideas and started putting them into (…) code, and at this point time, when I was between 25-30 years old, my model reached peak complexity which was completely unnecessary. (…) I think everyone goes through this phase – adding features to their system that ultimately add complexity - ?fitting things, adding parameters, destroying sample size without knowing it. I have been through that phase. And ever since that period, I have been (…) busy of dismantling the complexity from my system. When I take a step back today and look at my system – I still has my DNA, but it’s essentially a combination of relatively simple things.”

There you have it – the development trajectory of successful traders in a few simple words.

This and many more insights from Moritz & me can be found in this episode of the Systematic Investor podcast series. If you are curious to discover what else we discussed, feel free to tune into this week’s episode.

Have a great rest of your week!