This entry was posted on Wednesday, December 12th, 2007 at 11:53 pm and is filed under system trading. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
Trading is very different from “normal life” which is why so few people are good at it. In “normal life”, everyone says, “Don’t sweat the small stuff”, which basically translates to “If you keep showing up at work, taking care of your family and saving a bit of money, you’ll probably end up ok”, which is pretty much true.
Where people go wrong in trading is they try to apply the same top down strategy which usually involves forming an opinion on the overall market and then allowing that bias to influence all their trades. The problem with this is that predicting overall market directions over the next few hours, days, or weeks is completely irrelevant to being profitable in the market.
To be profitable, you must sweat the small stuff. I can consistently make money without CNBC, without news, without streaming quotes, without fancy charts. How do I do it? By sweating the small stuff. Dave and I have spent thousands of hours evaluating and analyzing numerous types of automated systems across all types of market environments using all different types of stocks with various position sizes. Either of us can pretty much look at the rules of an equity system and tell you what the long term statistics will look like, without ever running a backtest.
That knowledge was required to develop a system with a consistent edge. Once we had that (the easy part), the hard part begins. That part is executing the system consistently and properly EVERY SINGLE DAY and trying to keep commissions/slippage to a minimum. Each night, I religiously update all my quotes, run all my scans, enter all my orders, regardless of what the futures or doing, or what Cramer is saying, or what time of the year it is, or what the fed is doing, or what the $ is doing, or if I’m in a drawdown or if I’m feeling bearish. Those are all irrelevant. The important thing is to follow the system. Experimentation should be limited to order execution trying to get better prices (I’ve tried almost every order type IB has).
If you do all of the above, then you can stop worrying about the headline numbers and whether you’re bullish or bearish and just focus on executing your system and being a profitable trader.
- John
December 13th, 2007 at 4:09 am
Amen. Great post John.
December 13th, 2007 at 10:19 am
God I hate system traders!!!!!
December 14th, 2007 at 1:52 am
Good words to trade by! I would love to be able to ignore the daily market ups and downs and the bull/bear headlines. Can’t say that I’ve been successful yet. It’s obvious that your confidence is bred from hard work and hard nosed testing. You “know” that your system will work.
I “believe” that your system will work, that is why I am a subscriber. The difference between “knowing” and “believing” allows for some measure of doubt to creep in. I find that doubt is what motivates me to look at the headlines and watch the market movements, not that it helps at all.
Other than positive experiences over time using your system I’m not sure if there is any other way of narrowing the gap between “knowing” and “believing”.
I must say that your current and past posts are helpful. The “fire and forget” method of entering orders the night before also helps to reduce stress and uncertainty.
In any case, I’ll keep working on it. Cheers, Mike.
December 16th, 2007 at 12:24 am
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