Systems Trading (part 7) By: Jake Bernstein www.trade-futures.com

How about Some Positive Suggestions?
Now that I have your attention, I will give you a few positive suggestions regarding trading discipline.  Again, I will attempt to avoid standard recommendations.  This is not to suggest that the time-tested methods do not work.  Perhaps if explained and presented in a different way, they will make more sense.

Begin with a Simple Trading System
My years of research have revealed one important thing: the simplest trading systems often work best.  Yes, I know all about the claims and the hypothetical performance records.  I know all about the optimized systems and the black box systems and the virtues of artificial intelligence.  But I keep coming back to the same conclusion as a result of my research: simple systems work best.  They are easier to understand, implement and test.  Once you have experienced profits using a simple method, you can experiment with complex systems and decide for yourself.  You’ll find WT to be basic, simple and easy to understand.

Be Independent, Isolate  Yourself, Remain Pure
The trader’s mind is a delicate machine.  It is easily affected by the many inputs that daily impinge on the decision-making process.  The futures market thrives on opinions, mass psychology, emotion, news and rumors.  The less you hear, the better off you’ll be.  Your opinions are just as good as those of the next trader, and your systems, once tested, are as good as most.  Most systems are correct between 20 and 45 percent of the time.  By allowing the input of others to affect you, this margin may be decreased.  The ability to clearly see the markets is a great asset.  The more you allow other opinions to influence you, the more you’ll be like the rest of the trading world.  You will not be in good company.
Don’t Read the Market News

If you subscribe to one of the two daily U.S. financial papers, do so for the technical data only.  The news reports and opinions of the reporting staff are poison unless, of course, you can train yourself to do the opposite of what the majority recommends.  Too much news can be negative.

Don’t Get More Than Two Advisory Services
Actually, you’re better off with one or none.  If you get one service, follow it as closely as you can.  Don’t pick and choose from among its recommendations.  Follow all recommendations or follow none.  Most traders pick and choose wrong.

Don’t Discuss Your Trades with Anyone
Discussing your trades, signals, methods or indicators with other traders only infects them with your ideas and you with theirs.  Confusion will be the end result.  Play your own game in isolation.

Don’t Read Popular Trading Magazines
Most are full of ideas that don’t work.  If you have arrived at your goal of self-discipline, read all you want.  Otherwise, avoid trading magazines full of untested ideas, conjecture, heavy promotion, biased opinions, professional backbiting and advertisements that pander to weak minds and souls.

Don’t Discuss the Markets with Friends
Your opinions are not important to friends and their opinions are not important to you.  In stating your opinions, you will reinforce them to yourself, and you will be inclined to hold on to them in spite of what your system may say.  A good trader will not express too many opinions, but will focus on actions, positions and signals instead.

Begin with Sufficient Capital, Trade Small Positions and Diversify Your Trading
Attempt to spread your risk over several different markets.  Avoid the lure of large positions.  The need to trade large positions essentially stems from ego and feelings of inadequacy.  Many people need to compensate for negative self-concepts by asserting their power in the markets.  They attempt to prove their machismo by being aggressive, trading large positions, taking chances and asserting their independence.
You will be much better off beginning as a small fish in a big pond who seeks small reliable market moves as opposed to large, unreliable moves.  Size creates problems.  The larger your position the more difficult it will be to enter and exit trades with confidentiality and at good price fills.  It’s not the size of your position that’s important, but how you trade your position that will make you a winner or a loser.  Once you have learned how to trade, you can tackle the problems that come with large positions.

Change Your Perception of the Market
That’s easier said than done! All organisms are captives of their perceptions.  If you see the market as an adversary, you will approach it as a soldier approaches a combat.  If, however, you perceive the market as a vehicle that you must learn to operate, you will learn how to operate it to your advantage.  I am not suggesting that the futures or stock markets are so predictable that you will be able to play them like a fiddle.  I am, however, suggesting that your attitude about the market will shape the way you trade.  It is far easier to go with the flow of the market than it is to fight the trend.

Do Your Homework
If you have settled on a particular trading system or method, you must be strictly dedicated to keeping your work up-to-date.  When you’ve taken a few losses, you’ll be tempted to abandon your system or forget about your market work.  Then, when your work is out-of-date, the market will begin a large move.  You’ll quickly get your work up-to-date only to realize that you’ve missed the start of the move and it’s too late to get on board.

Be Prepared for Numerous Consecutive Losses
One of the most frustrating, anxiety-provoking things a trader can experience is a string of numerous consecutive losses.  These are the most difficult time for futures traders.  They cause errors, inconsistency, lack of discipline and the search for new systems.  If you are prepared for the worst before it happens, you will be able to cope with it when it actually does happen.  And believe me, it will!

Part One, Part Two, Part Three, Part Four, Part Five, Part Six, Part Eight, Part Nine