I've been thinking a lot about trading rules and systems lately. But all the silent musings have failed to bring about any improvement in my trading behaviors. Until today that is (I wonder if the fear of having to call my blog Jules The Pig has anything to do with it....)...
In the past, when asked about my trading system, I could never paint a conrete picture...And that's coz I haven't the slightest inkling what it is like, if there's actually one at all. It just dawned on me today that the reason that I don't have a system is simply because I don't have RULEs to begin with.
And the reason that I don't have rules is because I hate them. And the reason I hate rules is because they feel like things that are shoved down my throat. If you're trading a particular system taught to you by your coach, your father/ grandfather/uncle etc, you'll adopt the rules that come with it. So you either take someone else's system and follow its rules, or you construct a system, then put in the rules that you read about on books, forums, and those you picked up in seminars or from your coach. In both cases, the rules are simply INSTRUCTIONS. I don't know about others, but I'm one who really sucks at following instructions. In fact, I have an innate ability to intimate people into NOT telling me what to do.
Despite my rule-less trading way, I've YET to have a negative month. I attribute that to A LOT of LUCK, and maybe a little to this thing called "intuition". I have a high winning rate, and after accounting for all the blowups, I would still have a tiny profit left at the end of each month. But what has really been bothering me is not the rate of growth in my account per se. It's the lack of growth as a trader that's frustrating me.
And when I'm frustrated, I get destructive. It's who I am. I have to destroy before I build.
So after an agonizingly ugly episode where I just sat and watched my trade go 25 points against me, I finally found the motivation to start doing something about my intractable trading style.
Owing My Rules
I started by setting BOUNDARIES within which I'd operate, boundaries that would have helped protected my account had they been there at the onset. So my rules are not made based on others' experiences or teachings. They are intimately MINE, coz I've personally suffered the consequences of excluding them from my trading activities.
The point I'm making here is that you have to OWN the rules you set for yourself for you to even want to pay any attention to them. Each rule that you have made should have a story behind it. Without a sob story to back it, chances are you won't follow it, until...well, you fall hard, and then you have a sob story to tell.
Now, granted that I'm a wilful, stubborn, dysfunctional person - bordering on being psychotic and destructive - BY NATURE (I blame my mother for the bad genes), I do want to live a normal - perhaps even a constructive and fulfilling - life. And if I can't even trade right, I can pretty much forget about living right. And vice-versa. You get the drift.
My Rule Making Exercise
So I started by making a list of all the imperdonable trading sins I've committed, and identifying the motivations behind those actions. Following that, I looked for patterns that trigger them, and paid special attention to the recurring ones.
For instance, I noticed that breakouts often cause me to chase (motivation: greed) - I'd end up going long at near the day's high. Lousy entries like this can be found in almost all my trading days. But once I'm deep enough in trouble, my brain starts functioning, and I almost always am able to get out unscathed, or losing less than what I could have lost had I gotten out in panic.
To avoid having to go through these episodes that cause a major blowup almost on at least a monthly basis, these are the rules that I've set for myself:
1) I'll not chase a breakout in a ranging, choppy environment
2) I'll accept that I've timed my entry wrongly, even if my direction is correct, and I will get out once the conditions supporting my entry are breached
3) I'll always stay in a "in position" mode - that is, I'll not let my hair down simply because I'm not in trade. I'll be in "imaginery" trades as long as I'm sitting at my workstation. This helps to keep my mind objective and alert at all times and helps me filter out false signals
Another example is the use of indicators. I will be covering this in a separate blog entry. But briefly, by identifying the trades that went wrong, I noticed how I've jumped the gun on the signals generated by certain indicators. Other times, mistakes which could have been readily avoided were made coz I had failed to pay attention to these tools that were supposed to be there to give me an extra edge. I've since made rules pertaining to when and how signals from indicators will be used.
A System, Finally
What surprised me about the whole rule making exercise is that after having made them, and starting adhering to them (er...today being DAY no. 1), for the first time, I felt like I have a system! And that I had taken a loss with not the slightest bit of emotion simply confirmed my suspicion.
The system will need some fine-tuning of course. I'm just glad that I finally have something that I can work on, something to fine-tune!
So do I still believe in trading another person's system?
ABSOLUTELY.
Coz that's probably the fastest way to learn the most important lesson in trading:
That it is a very personal and lonely JOURNEY. You'll get knocked about more often than you like/ expect, but that's inevitable - necessary in fact - so you know what to do and what NOT to do to avoid a death fall. Sure you can start by trading someone's holy grail - and that's darn good coz it will make you fall even harder and at a much higher frequency. Once you've wisen up, and zoom right into the root problem - those generic RULES (why the builder of the system had them there in the first place, are the reasons compatible with your objectives and needs) - you'll start making rules that are specific to your circumstances and trading style, rules that will facilitate instead of hinder your trading. You now OWN those rules. And before you know it, you'll be trading a system you can call your own too.
In the past, when asked about my trading system, I could never paint a conrete picture...And that's coz I haven't the slightest inkling what it is like, if there's actually one at all. It just dawned on me today that the reason that I don't have a system is simply because I don't have RULEs to begin with.
And the reason that I don't have rules is because I hate them. And the reason I hate rules is because they feel like things that are shoved down my throat. If you're trading a particular system taught to you by your coach, your father/ grandfather/uncle etc, you'll adopt the rules that come with it. So you either take someone else's system and follow its rules, or you construct a system, then put in the rules that you read about on books, forums, and those you picked up in seminars or from your coach. In both cases, the rules are simply INSTRUCTIONS. I don't know about others, but I'm one who really sucks at following instructions. In fact, I have an innate ability to intimate people into NOT telling me what to do.
Despite my rule-less trading way, I've YET to have a negative month. I attribute that to A LOT of LUCK, and maybe a little to this thing called "intuition". I have a high winning rate, and after accounting for all the blowups, I would still have a tiny profit left at the end of each month. But what has really been bothering me is not the rate of growth in my account per se. It's the lack of growth as a trader that's frustrating me.
And when I'm frustrated, I get destructive. It's who I am. I have to destroy before I build.
So after an agonizingly ugly episode where I just sat and watched my trade go 25 points against me, I finally found the motivation to start doing something about my intractable trading style.
Owing My Rules
I started by setting BOUNDARIES within which I'd operate, boundaries that would have helped protected my account had they been there at the onset. So my rules are not made based on others' experiences or teachings. They are intimately MINE, coz I've personally suffered the consequences of excluding them from my trading activities.
The point I'm making here is that you have to OWN the rules you set for yourself for you to even want to pay any attention to them. Each rule that you have made should have a story behind it. Without a sob story to back it, chances are you won't follow it, until...well, you fall hard, and then you have a sob story to tell.
Now, granted that I'm a wilful, stubborn, dysfunctional person - bordering on being psychotic and destructive - BY NATURE (I blame my mother for the bad genes), I do want to live a normal - perhaps even a constructive and fulfilling - life. And if I can't even trade right, I can pretty much forget about living right. And vice-versa. You get the drift.
My Rule Making Exercise
So I started by making a list of all the imperdonable trading sins I've committed, and identifying the motivations behind those actions. Following that, I looked for patterns that trigger them, and paid special attention to the recurring ones.
For instance, I noticed that breakouts often cause me to chase (motivation: greed) - I'd end up going long at near the day's high. Lousy entries like this can be found in almost all my trading days. But once I'm deep enough in trouble, my brain starts functioning, and I almost always am able to get out unscathed, or losing less than what I could have lost had I gotten out in panic.
To avoid having to go through these episodes that cause a major blowup almost on at least a monthly basis, these are the rules that I've set for myself:
1) I'll not chase a breakout in a ranging, choppy environment
2) I'll accept that I've timed my entry wrongly, even if my direction is correct, and I will get out once the conditions supporting my entry are breached
3) I'll always stay in a "in position" mode - that is, I'll not let my hair down simply because I'm not in trade. I'll be in "imaginery" trades as long as I'm sitting at my workstation. This helps to keep my mind objective and alert at all times and helps me filter out false signals
Another example is the use of indicators. I will be covering this in a separate blog entry. But briefly, by identifying the trades that went wrong, I noticed how I've jumped the gun on the signals generated by certain indicators. Other times, mistakes which could have been readily avoided were made coz I had failed to pay attention to these tools that were supposed to be there to give me an extra edge. I've since made rules pertaining to when and how signals from indicators will be used.
A System, Finally
What surprised me about the whole rule making exercise is that after having made them, and starting adhering to them (er...today being DAY no. 1), for the first time, I felt like I have a system! And that I had taken a loss with not the slightest bit of emotion simply confirmed my suspicion.
The system will need some fine-tuning of course. I'm just glad that I finally have something that I can work on, something to fine-tune!
So do I still believe in trading another person's system?
ABSOLUTELY.
Coz that's probably the fastest way to learn the most important lesson in trading:
That it is a very personal and lonely JOURNEY. You'll get knocked about more often than you like/ expect, but that's inevitable - necessary in fact - so you know what to do and what NOT to do to avoid a death fall. Sure you can start by trading someone's holy grail - and that's darn good coz it will make you fall even harder and at a much higher frequency. Once you've wisen up, and zoom right into the root problem - those generic RULES (why the builder of the system had them there in the first place, are the reasons compatible with your objectives and needs) - you'll start making rules that are specific to your circumstances and trading style, rules that will facilitate instead of hinder your trading. You now OWN those rules. And before you know it, you'll be trading a system you can call your own too.
2 comments:
Hey Jules,
Nice post. I couldn't agree more with rules 2 & 3 especially.
PS lol@taking breaks....seems like we all need to do something to entice us away from a stations for luxuries such as food, exercise etc
Thank you, MM :-)
Yes, food and exercise have indeed become luxuries...if I don't start trading better, I'm going to have to go hungry and sell my bike on ebay! LOL!
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