9/05/2008

What is This Blog For?

I received another email from someone requesting my "trading system".

This begs the question, what is this blog for?

Hmmm.

The blog started as I thought it may be helpful to other traders to see some of my original business plan. (see posts from March & April).

It then morphed as I am a bit of a news junkie and thought why not compile some of the oil related news stories I see in one place for those who share the same interests.

The last reason for the blog is to show how I trade the crude oil market on a daily basis. I learned to trade by watching others, reading, reading, and reading some more.

Then after all that you lose money and start over.

The main benefit to me from the blog is the daily review of the market and the trades I took in that market.

My hope is others find this interesting, useful, and at time humorous.

What the blog is not is an attempt by me to convince you to trade exactly the way I trade.

If you do take any part of how I trade and adapt it to your own trading system that's great.

But I will stand on the theme of the repeat post below: YOU CANNOT TRADE SOMEONE ELSE'S SYSTEM.

This post was originally published April 4, 2008

How to Trade?

Many people in the "trading" business are willing to sell you their trading system. This begs the obvious question, if the system is so good why would they sell it?

Even if the system is valid the vast majority of people would not make money trading it.

Why?

Because they will inevitably deviate from the system.

Why?

You must trade your own beliefs in the market, not someone else's. This failure to follow occurs whenever there is a drawdown in someone else’s system that you are trying to trade.

Trading is money and money is emotion and when these emotions are put to the fire you will fail if you are not dealing with your own belief system. In order to stick with “the plan” in a drawdown you must believe in your plan and this belief can only come from the very core of who you are and your psychological relationship with your money at risk in the marketplace.

You must develop, design, and build your own system based on your own research. You can then build a database of trades that provide the trader a statistical basis on which they validate their trading system.

Then you try and sell it to others. :)

12 comments:

J the FX Wizard said...

You are absolutely right. You cannot trade someone else's system. You cannot trade a system if you have not invested time developing the system mentally in your own mind and lived through the joy and pain of trading it. There is no magic formula. Think of all the trading forums you've ventured into (I know you have), there is always the guy that seems to be making money and then there are the rest that attempt to trade that guy's system and never go anywhere themselves. Most of them end up trying glean the "grail" from everyone else in the forum for years on end, and in most cases the forum gurus are losing money also. There are no free lunches in trading, not even if one is handed to you. Better go with a managed account if that's what you're looking for. By the way, I might be convinced to offer a managed account for a modest fee...Also, Solfest, I'm still waiting for you to email me the system buddy...

Solfest said...

j the fx wizard, what you need is a plan!!!

The Lonely Trader said...

Um, "Trading Turtles," anyone?

Solfest said...

Lonely trader: you’re right; some of the turtles who were taught by Richard Dennis did learn to trade his system. However it was done in a classroom setting, and then they traded his money under his supervision.

Even after all that when the turtles were disbanded only a very few were successful trading their own money.

My point is people who want to circumvent all the work and just buy someone’s system to trade will fail.

The turtles system has been well documented now by Curtis Faith and Michael Covel so if you want a system to trade buy their books and have at it. :)

Solfest said...

Oh yes and if you go to the Solfest Recommends book carousel and spin it around (which is very fun) you will see Faith's book, Way of the Turtle. Click on that book and you are on your way, and I will become rich beyond my wildest dreams with my huge Amazon commissions. Rich !!! Rich I say!!! (insert wild cackling laughter here)

thelonelytrader said...

LOL...I say all that stuff all the time. I really do. But it depends on the person I am talking to and the context. But!...if you have a good teacher, and you follow the instructions, and the method has an edge, the simple fact of the matter is you just have to click the damn button. It can be done. It's just very, very difficult to find someone who would willingly let a monkey like me have at it -- unless that someone was a well-capitalized bank or proprietary firm. But most of the latter are bucket shops and the former wouldn't hire anyone with a second-tier MA in a non-financial field.

I'm talking here about a credible, successful mentor, with a valid, profitable method. They are out there. This stuff happens all the time -- and traders learn to trade someone else's plan all the time, although most people are unable to make it work for their own personal and psychological reasons. So let me ask you this --

If someone showed you their method, and they were successful with this method over time, and the rules were clear and virtually mechanical, would you try to trade that method, with that person's instruction and guidance?

Okay, let me answer that one: YES. I would try it. I would be stupid not to. And I would do exactly as my mentor told me. And I would give it at least a few months to work -- depending on the frequency of trades.

I think just about everyone would do the same, if they saw beforehand that the method and plan worked. I am a Marine. I know how to follow instructions and I know how to improvise in the fog of uncertainty. I'm comfortable with measured risk and imperfect information. I just haven't found a good method or mentor yet, and so I have gone it alone with my own methods, mostly cobbled together with what I've learned piecemeal from others.

For the last eight years, I've been successful off and on -- mostly off as of late. (As Simon Hart over at Simonsupertrader.com said once, early success is the poor teacher.) Now I think I may have a working model, but it's been a difficult road just to implement it. But when I do, and if it works, will I try to find someone to trade it? Eventually, yes. I can't cover all markets, all the time. (You see how this works. So I don't need to go any further here.)

So would I give all that up for a mentor and a model that required no work on my part, other than to be disciplined and execute according to my mentor's plan? Absolutely. In a heartbeat. I would give all that up and a lot more, because at the end of the day, I love to trade.

But would I buy some half-assed EA off of a website? Hell no! Of course not! Would I trade the Turtle system? Nope. It has lost it's edge. (You already know why.)

Love the blog. And the debate. This is good stuff.

Oh, and I do know where Alberta is...just for the record. I was just funnin'. The fact is I'm jealous of Canadians. Next to Aussies and Omanis, they're my favorite people.

Jules said...

I haven't quite figured out what my system is, Solfest. I suppose it's still under construction....

I use up to 5 different time frames in one trading session, and focus on different ones according to the time of the day and how choppy the market is. I trade different sizes (yes, I know about position sizing) depending on whether it's a trending or crazy market. When market's gone nuts, I go with the flow and trade like a crackpot: in and out with 5 contracts, get my few ticks or lose a few ticks and run. When I'm trading small sizes, I run sometimes, but wait sometimes , depending on how fast my heart's beating (if I'm dead wrong, my heart usually pumps at 150 beats/min...how's that for indicator? LOL).

I have a dozen sets of indicators (haven't really settled on one) which I don't really look at anyway. Except the moving averages. They tell me if the market's going up,down or nowhere in the first hour of the session.

I am not good with rules, even my own. The only rule that I stick to is to never take a risk that I can't handle financially and emotionally. I have a very low threshold for failures - they break my spirit and my heart. So, in a game of probability, I work to lose less than what I make so that at the end of the day, I net a gain. I have had days with many losing trades, but few losing days. I lose sleep over losing days.

Maybe I do have some sort of a system.

An unruly system.

Good thing I never gave selling it a thought :-)

By the way, you are humorous, and so is your site :-)

Solfest said...

You are a marine lonely, you never give up.

If Richard Dennis or someone of his ilk ran an ad in the paper offering to teach anyone how to trade for no cost I would be there with my Scooby Doo lunch kit.

However that's not likely to happen again, so finding that mentor, as you say, is very difficult.

I also am a block headed Canuck of Norwegian descent who simply must do things my way.

This is an attribute that probably falls into both the strength and weakness category for traders.

Which, play segway music here, bring us to my next post.

Solfest said...

Jules although we can keep a large number of stats around probabilities and expectancy there is only one stat that counts.

Profit.

You seem to have found it.

X Chen said...

youre very right

i bought a system from a guru

it has very high pwinning percentage

but losers are alot bigger then winners

in the long run its profitable though

when i got my first big loss, i got afraid

and didnt take the winning signals which would have negated my loss..

worst part is statistically im much more closer to another loss again.

so u gotta always stick to the plan

Solfest said...

You are right x chen, and if it was just that easy everyone would do it.

Solfest said...

You are right x chen, and if it was just that easy everyone would do it.