A financial trader monitors data on computer screens on the trading floor. (Photographer: Jasper Juinen/Bloomberg)

Algo Convention: Why Veteran Investor Tom Basso Cautions Traders Against Using More Filters

Traders should use technical indicators or filters carefully because more parameters would restrict the viability and robustness of the trading strategy, according to Tom Basso, founder and president of Trendstat Capital Management.

“In the pursuit of finding the perfect trade, which is 100 percent reliable, you end up not taking a trade with so many filters layered on top of your trading system,” he said on the sidelines of Algo Convention 2019.

Modern trading software allows traders to use various technical indicators—a mathematical calculation based on historic price, volume, or open interest information that aims to forecast financial market direction.

Not only that, Basso also had a piece of advice for new traders. They must avoid making the mistake of trading every day, he said.

“Trading initially is a bit overly exciting and it’s going to push your buttons emotionally,” he said. “You want to keep things easy. So, start longer term and move shorter as you become more experienced. Don’t trade any more than you have to, especially if you’re a day trader given the high costs attached.”

Watch the full video here: