Learning Flawless Execution of a Trading System I

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The proper execution of your trades is one of the most[ fundamental components of
becoming a successful trader and probably the most difficult to learn. Most traders find
it is much easier to identify something in the market that represents an opportunity,
than it is to act upon it. However, there are some very good psychological reasons why it is
so difficult to act on a trading signal. To understand these reasons, you need to understand
the nature of trading systems (defined as any methodology that consistently identifies an
opportunity to buy or sell with a potential profit in some future moment) and how these systems
interact with the markets and ourselves.
For example, most good trading systems, technical or otherwise, will consistently take
money out of the markets over the long run. Most of these good systems have been available to
the public for years, and yet, there is still a huge gap between what is possible and what most
traders end up with. The problem with trading systems is they define market behavior in limited
way when the market can behave in a most infinite combination of ways.
Systems mathematically or mechanically can reduce relationships in human behavior
characteristics to percentage odd of what could happen next. They cat only capture a very limited
number of these behavior characteristics compares to the billions that are possible. As; result,
any identified pattern may or mat not be repeating itself with respect to the way the pattern or
relationship] progressed when it was observed in the past. Therefore, we never really know if it is
valid or not until it has actually completed itself. The big psychological problem here is that people
have a great deal of difficulty acting on opportunities with probable outcomes.
Most people like to think of themselves yes as risk takers, but what they really want is a
guaranteed outcome with some momentary suspense to make it feel like the outcome was
in doubt. The women vary suspense adds the thrill factor necessary to keep our lives from
getting too boring. However, when it come right down to it, no one trades to lose or puts on a
trade believing it is going to be a loser, and all systems will denitely have some percentage
of losing trades So it’s difficult not to be tempted into trying to guess which ones are going
to be the losers and not participate.
As most of you reading this article all ready know, trying to outguess you trading system can
be and usually is all exercise in extreme frustration. The signals you get from a trading system
will have you trading in ways that are corn completely contrary to your logic ant reasoning.
Sometimes the system will] defy your reasoning and be right ant sometimes you will agree with
the system and it will be wrong. You need to understand that technical trading system terns
are not designed to be outguessed What I mean is, they aren’t designed to give you isolated
signals of an opportunity to be taken when it seems right. What they do is mathematically
dene, quantify, and categorize past relationships in collective human behavior to give you a
statistically probable outcome of the future.
Traders World 370
As a comparison to trading, it is much easier to take risks and participate in a gambling
event with a purely random outcome based on statistical probabilities, simply because it is
random. Meaning, if you risk your money on a gambling event that you know has a random
outcome, then there’s no rational way you could have predicted what actually happened.
Therefore, you don’t have to take responsibility for the outcome if it isn’t positive. Whereas,
with trading, the future is not random. Price movement, opportunity and outcomes are created
by traders acting on their beliefs and expectations of the future. Every trader contributes
to the outcome of the future by putting on and taking off trades in accordance with their
beliefs. Since traders actually create the future by collectively acting on their beliefs about
the future, the outcome of their actions is not exactly random. Otherwise why would traders
try to outguess their trading systems, unless they had some concept of the future and how
that future will effect the markets.
This adds an element of responsibility to trading that doesn’t exist with a purely random
event which is difcult to avoid. This higher degree of responsibility means more of your
self-esteem is at stake, making it much more difcult to participate in. Trading gives you all kinds
of ways to beat yourself up for all of the things you should have or could have considered that
would have resulted in a more satisfying outcome.
Furthermore, you don’t trade in an information vacuum. You form your expectations about
the future with information that technical systems don’t take into consideration. Consequently,
this sets up a conflict between what your intellect says should be happening, and the purely
mathematical means of predicting human behavior afforded by your technical system. This is
precisely why technical systems are so difficult to relate to and execute. People aren’t taught
to think in terms of probabilities and we certainly don’t grow up constructing a conceptual
framework that correlates a prediction of mass human behavior in statistical odds by means
of a mathematical formula.
To be able to execute your trading systems properly you will need to incorporate these
two concepts into your mental framework–thinking in terms of probabilities and correlating the
numbers or the mechanics of your system to the behavior. Unfortunately, the only way you can
really learn these things is to actually experience it by executing your system. The problem is that
rarely will the typical trader stay with his system beyond two or three losses in a row, and taking
two or three losses in a row is a very common occurrence for most trading systems. This creates
somewhat of a paradox or catch 22. How do you do it if you don’t believe it, and you won’t learn
to believe it unless you do it long enough for it to become a part of your mental framework. This is
where you employ mental discipline to eventually make flawless execution a habit.
When you form any habit it acts as a force on your behavior. This force exists inside of your
mental environment in the form of a belief. Mental discipline comes into play when you need to
establish a belief that does not yet exist, and more importantly, doesn’t have the support beliefs
in your mental system that already do exist. For example, if you are not a runner and decided
you wanted to become one, you may have many beliefs that don’t support this expression of
yourself. These beliefs will act as resistance to your attempts to run by drawing your thoughts
and attention to anything that will divert you from your intent to do so.
Mental discipline is a form of thought control employed to recognize the dynamics of
this process focus your attention back on your goal and purposefully work through your
resistance to establish this new expression of yourself. The more you do it the faster you will
establish a new belief that you are a runner. This new belief will then act a force on your
behavior motivating So you to run.


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