In What I Learned From My German Brethren Part Ein, I discussed the fact that they aren’t unlike my American Brethren. Many are searching for the Holy Grail and/or tend to overcomplicate things. Many also tend to micromanage. As mentioned in part Ein, fixing this problem could be fodder for an entire course. Let’s see if I can sum it up…
Before we get to that, I woke with a minor epiphany. Trading is really only two things: 1. Finding a viable system and 2. Trading it. Number 1 isn’t easy but it’s much easier than #2. A hedge fund manager once said that he could publish his system on the front page of the Wall Street Journal and it would not affect his fund’s performance. The reason is that people wouldn’t follow it. This actually came up while I was in Germany when they couldn’t believe that this crazy American was showing them exactly what he does.
I have personally witnessed this. I preach and teach a viable methodology here daily. Having patience is just one
example. In spite of my ramblings on this, people try to make something happen in less than ideal conditions vs. sitting on their hands, they try to get in early to “beat” the system, and once in, impatience causes them to exit at the first signs of adversity/at a tiny profit/as soon as the market begins to consolidate. I’ll touch upon some of these aspects in Thursday’s Big Dave’s The Week In Charts-I have a so called “Dead Money” report planned.
Finding a system is important but finding one that you’ll actually follow is key. As my bride once said (after I bragged to her about my system de jour) “How many trading systems do you really need?” Just one babe, just one–the one that you’ll follow.
As mentioned in Part Ein: Like here, the distance between you and your success isn’t very far. In fact, it’s only the distance between your ears. (over there) I met two young traders. One was successful while one was struggling. Did one have a superior methodology? Nope. In fact, they were trading partners. One was following the system while the other was micromanaging the trades vs. following the plan.
So, how do we fix that? First, you have to make sure the methodology fits your psyche. Do you want to be in and out all day long? Can you handle the emotional burden of making all those decisions? (I can’t—and most can’t for that matter since all decisions involve emotions*). Conversely, if you’re trading a methodology like mine where patience is really key, can you sit on your hands waiting for opportunities? Once in, can you see the trade to its completion by honoring your stop vs. exiting early? And, if you make it that far, can you continue to wait patiently for the initial profit target to get hit and then stay with it via a trailing stop?
Now, assuming that you have a viable methodology—viable because you’re watching someone else trade the signals successfully—but you’re still struggling with it:
(1) Get small, trade at ½ the normal size. If you still aren’t following the system, then get smaller again-half that. When the amount of money is meaningless, it’ll be
much easier to follow the system. Taken to extreme, as mentioned in the Layman’s Guide To Trading Stocks, “I’ve never met an unsuccessful paper trader.”
(2) On the next trade, and just that trade, follow the plan—not matter what. If you were successful in doing that—notice that I did not say successful in the trade—then congratulate yourself. Maybe give yourself a small reward. And, then, on the next trade and just next trade….
(3) Make decisions passive ones and not active ones. Let the market make decisions for you. For instance, allow the stop to keep you in or take your out.
(4) Watching every tick doesn’t help the market move in the intended direction. Trust me, I’ve ruined a perfectly good set of eyes trying to do just that. So, if you are staring at your screens, don’t. Place the trade and then turn them off. If you have to, physically remove yourself from your office. Or, occupy your time by doing some research. I keep myself extremely busy-travel the world, articles, courses, videos—because I know if I just sit here I will answer the Siren call of daytrading and micromanage my position trades.
(5) If you are not following the plan making numerous decisions then make fewer decisions. Maybe the system, in its present state, is not for you. Find a filter that will reduce the amount of trades or find a system that trades less. You’ll never be able to trade a system, no matter how great it is, if it doesn’t fit your psyche.
So, like my American Brethren, the methodology that will work best is the methodology that you will follow. Like Curly said in City Slickers, “One thing..”
To The Markets
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