Engineers + Stock Market = Big Profits?
It seems that when it comes to the financial markets, engineers are everywhere! Offhand you might not expect to find your typical “measure twice, cut once” engineering type anywhere near the wild and wooly world of stocks and futures trading, but they're there.
To an engineer, the up and down movement of the stock market represents a signal that just begs to be measured and analyzed.
As a longtime market participant and regular reader of financial/trading books, magazines, and (more recently) blogs, I'm constantly coming across examples of market professionals with engineering backgrounds. Some of them are authors and developers of trading systems and indicators; others are traders themselves, like the popular blogger “Trader Mike” (http://tradermike.net).
There's no question the markets attract many people from a variety of backgrounds, but I wonder if engineers account for a disproportionate share of traders. Certainly the idea of technical analysis�a math- or graphical-based approach widely used by traders to evaluate the performance of a security or market based solely on its price behavior�is appealing to an engineering mind.
Mike of “Trader Mike” agrees, saying, “The idea of solving the ultimate puzzle (the holy grail) is a challenge that's hard to resist�not to mention all the math and formula writing that can be involved with technical trading.” A further appeal of course is that solving the puzzle means making money!
And there's no shortage of engineers turned authors. Years ago, two of the very first books I ever read about the financial markets were written by engineers. The first, a book on stock options written by an electrical engineer, discussed practical mathematical pricing models for those derivatives.
The second, The Profit Magic of Stock Transaction Timing , written over 30 years ago by aerospace engineer J.M. Hurst, may have been the first to be based on computerized research of stock price action. Now considered a classic, it discussed methods used to identify cyclic behavior in stock price movements and even delved into the mathematics of Fourier analysis.
More recent examples show traders how they can exploit the cheap and readily available computing power available in their PCs to perform amazingly complex analysis of market data. These include Rocket Science for Traders: Digital Signal Processing Applications , by John F. Ehlers�a degreed electrical engineer known widely among traders for his MESA (Maximum Entropy Spectral Analysis) trading software�and Beyond Technical Analysis , by Tushar Chande, whose background includes a Ph.D. in engineering.
It's all fascinating stuff, and it makes great reading (if you're an engineer). But do any of these methods work? Well, opinions differ.
My own feeling�based on years of having used everything from moving averages to cycles to Elliott Waves�is that it may not really matter. Instead, as experienced market participants often point out, the key to consistent market profits may lie more with risk control, money management, and overcoming psychological barriers.
Still, if anyone ever does discover that elusive holy grail of technical indicators, I bet it'll be an engineer.
R. Pell
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