System Trader or not...

You have to have to have your mental game in order

The stereotypical trader:

We’ve all seen the various Hollywood portrayals of traders on Wall Street. There’s the greed, the stress, the excessive drinking or drug use, and the high stakes that come with having the guts to take on huge positions, deal with the stress and make a killing.

A systems trader:

That image doesn’t come close at all to my life as a trader. What I do is as boring as I can make it with respect to execution. My excitement as a creative human would be when I’m developing a new strategy to solve a challenge in my trading. I look at the history, equity curve, and indicators/time periods that I can use to solve the trading challenge and create something that makes sense to get the job done.

Other traders are more discretionary and I get that, but it’s not who I am. I have an engineering degree (chemical) and have no problems with programming, numbers crunching or trusting a computer to execute whatever I’ve instructed it to execute.

A discretionary trader:

Successful discretionary traders do not operate in a vacuum without some kind of plan. They might look at fundamental data, chart patterns or various price action, but they come to the action with a general plan and use their discretion to pull the trigger or not. They repeat this over and over, managing their position sizes to never put themselves in harms way and produce profits over the decades. To me, that sounds a lot like what my computers might be doing, so I don’t see a big difference in the two approaches.

So, what are the keys to success with both of these approaches?:

1. Inputting price action into the process, rather than spending a lot of time and effort in predicting what prices will do. One of my favorite sayings is “The market will do what the market will do.” I repeat that to myself over and over and over again. Predicting may be fun to do and it may stroke your ego when you predict correctly, but many successful traders have no inkling of where prices will be 6 months from now and don’t really care.

2. Consistently following the plan should be so easy to do and yet, most traders struggle with this. There’s so many temptations to veer off the straight and narrow into uncharted, exciting territory. Realize when you are off plan and get yourself back on plan immediately!

3. Sizing the positions, so risk of ruin is minimized. Many new traders blow up based on over-leveraging due to lack of position sizing, capital or both. Properly capitalize your trading account and develop a consistent, easy-to-use sizing logic that helps you keep position sizes in the portfolio that are appropriate for your needs.

4. Understanding the mental game in order to put trading into perspective in life and treating each trade as just another trade in a series of the next 1,000 trades. Many traders on X platform will talk of putting on a position in X??Z ticker and it seems to be their current focus. A lot of emotional energy is expended on that one trade. By looking at that trade as just one of the next 1,000 trades you need to execute in order to call yourself a seasoned trader, you end up minimizing the stress and importance of that one trade. I AM NOT SAYING to ignore the trade or to not run the strategy. I AM SAYING to put that trade into a proper mental perspective.

5. Having backup plans for emergencies. Lots of traders are not prepared for what might happen. Do you have plans for:

   1. You lose electricity.

   2. You lose your internet.

   3. Your brokerage firm trading software goes down.

   4. The exchange changes the margin requirements for some of your positions.

   5. A personal emergency requires your presence.

   6. Your data provider goes down.

   7. You have to relocate in a weather emergency.

   8. You take a vacation.

   9. You get sick and have to stay in bed.

   10. A two-year, -50% bear market shows up.

   11. A stock you own halts trading for an announcement.

   12. Any one of a number of other of life’s unexpected events?

Bottom Line for me:

I don’t get hung up on what other people decide to label me. Tom’s a “Market Wizard” or “he’s fully automated” or “he’s not a real trader” or “he just has to push a button and the trades come out”. In the end, I’m the responsible person that has decide what buttons to push, when to push them, what pushing those buttons will do to my trading and portfolio, and have the mental game to deal with all the pressures that every trader feels when trading. After 50 years, I have figured out a few tricks for navigating the maze and I am indeed enjoying the ride.