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At some point, if they last long enough, all traders discover
that successful trading is not the inevitable result of a good
trading strategy or system. If all we needed was a good system
or indicator we would all be successful traders. Yet clearly we
are not, far from it, there are very few traders making their
living consistently from the markets.
Technical analysis is
a vast and well researched subject. Many minds have poured their
heart and soul into searching for the holy grail of trading: the
system, strategy or indicator that will yield to them unlimited
wealth and glory. Yet with all this depth of knowledge readily
available, trading profits remain as elusive as ever.
If we were to take a
scientific approach to evaluating technical analysis we would
have to conclude that it is of limited value. System vendors
though, will continue to exploit our desire to believe that
there really is some secret knowledge that will enable us to
transform into super traders as soon as we expose ourselves to
their secrets. It is a very tempting fable to believe in, it
offers an answer to our prayers and our problems, it engages our
ego (how great to conquer the markets and escape the drudgery of
work etc..) and it allows us, briefly, to relinquish the painful
self-doubt that we are unconsciously fighting. The system
vendors flatter and deceive us in the same way that street
sellers sell exclusive, stolen perfume, which is usually no more
than bottled water. We are easily deceived when we are told
exactly what we want to hear.
Let us pretend that a
system vendor really has a system that works as they claim. Let
us also assume that his cup truly does ‘runneth over’ and he
sincerely wishes to share his knowledge as a way of repaying his
good fortune; and finally let us assume that he charges a fee,
not for his own gain, but to ensure that his clients really take
him seriously.
Assuming all this,
does it make sense to make his knowledge available in a book or
a seminar? We all have discovered that trading is not easy and
one of its biggest challenges is following our signals, be they
based on an indicator or our intuition. It is so easy to doubt
our signal when the moment to act arrives, we hesitate and the
opportunity is gone.
So having learnt our
hero’s strategy we then have to become adept at implementing it,
which brings with it a whole host of problems that only become
apparent as we attempt to execute the system. Now the issues
that get in the way of implementing a strategy are not issues
that any system vendor can resolve in a book or a weekend.
In fact the system
vendor would have it that all our previous problems with trading
result from not having a good enough strategy, which of course
is a problem he can easily solve for us. The basic premise of
the system vendor is that all the psychological issues in
trading, in fact all the problems we have in trading, are a
consequence of not having a really good system or strategy.
This I do not
believe, it is like claiming that we could all play golf like
Tiger Woods if we had a certain set of golf clubs, or that we
could achieve the same level of success as Pete Sampras if we
used the latest racket. We all need golf clubs to play golf or a
tennis racket to play tennis, no question; but they do not
determine our success.
Tiger Woods would
still be a great golfer even if he was handicapped by playing
with antiquated clubs, but no novice golfer is going to be
transformed into Tiger Woods simply by buying the right
equipment. If the system vendor has perfected the perfect
trading system and if he has developed the skill to successfully
implement this system, surely the most effective method to share
his good fortune would be to create a fund that we could all
invest in. That way the vendor can ensure that we all receive
the full potential of his system without any effort on our part,
without us having to overcome the bigger challenge of
implementing the system ourselves.
Presumably for every
client who learns the system only a few manage to implement it
successfully, with the fund option every client gets the full
benefit of the system; so why not start a fund, a much better
way to share the fruits of his good fortune. The other question
that is frequently asked is why doesn’t the vendor display the
full results of trading the system? Instead we get comments like
‘97points this morning, thanks a £…grand!’ from a satisfied
punter.
In order to evaluate
the effectiveness of any system we need to be able to see the
results of every trade, over a significant period of time, so we
can compute the necessary statistics. If a vendor has done so
well, why can’t they publish their own verified trading results?
Some do, but only in snippets, we need the whole lot; and why
not if they have had the results they claim, what have they to
lose?
The reason that
vendors do not publish their results and the reason that vendors
do not start funds is that their systems do not work
consistently. They work periodically sure, they can find
numerous examples of successful trades, but they do not work
consistently. But even if their systems did work consistently
they do not publish their results or start funds as they have
not been able to overcome the implementation and execution
hurdle, they are not good traders. They may be good researchers,
good teachers and good sales people, but they are not good
traders.
System vendors can
teach us how to market products, they can teach us how to write
sales letters, they can teach us how to present, they can teach
us many things, but they cannot teach us how to trade. They
cannot teach us how to trade because they have not learnt how to
trade, all their energy has been spend researching and
developing systems and the only way to make money from these
systems is to sell them. Learning to trade has nothing to do
with researching and developing systems anymore than designing
golf clubs has to do with learning to play golf.
Trading, like any
endeavour, any skill, is learnt through doing. We learn through
trial and error, through having experiences and evaluating and
learning from those experiences; and of course, our learning is
accelerated if we have the support and advice of someone who is
further along the path of development. The skills of trading are
to do with execution, and implementation, the doings of trading.
The problems we all experience in our trading, problems that are
popularly referred to as the psychology of trading, are the
challenges of trading, it is these problems we surmount as we
develop our trading skills. The skills of execution are the
equivalent of the basic shots and strokes that make up the games
of golf or tennis. There is no point having a strategy in tennis
if we can’t execute the complement of strokes we need to be able
to play.
Knowing that we need
to hit the ball deep and move our opponent from one side of the
court to the other is of no value if we cannot hit the basic
shots. There is no point having a trading strategy if we can’t
trade and no novice trader knows how to trade. The problems we
all experience in trying to make money trading stem from the
fact that we do not yet have the skills of a trader. If all we
needed was a system we would all be wealthy; no, we need to
become traders.
If you have read the
Market Wizard books by Jack Schwager, you will notice that each
of these very successful traders has a different approach or
system, yet they are all successful. Their approach is not the
common factor that determines their success. The common factor
amongst them is their trading skills. What are these trading
skills and how do we develop them in ourselves, that is the
million dollar question.
We need to look to
ourselves for the answers, what are the problems that we
experience, what are the behaviours that result in our lack of
success and our failures? It is overcoming these behaviours that
move us along the path of the trader. The basic rules of trading
are cut your losses short and let your profits run, a losing
trader is not doing one or both of these. When we have learnt to
ruthlessly cut are losses and have the restraint to run our
profits, only then are we traders. And it is during the process
of our development, as we demythologise the market, that we
start to have the observations and make the distinctions that
lead us to evolve and refine our trading strategies.
If we could have the
strategy of a successful trader delivered to us on a plate would
it be of any value to us? I don’t believe so; in the same way we
could not implement Tiger Wood’s strategy, or Pete Sampras’s,
because we do not have their skills, so we could not implement
another traders strategies without their skills. We must develop
as traders first and in so doing we will naturally evolve our
own unique style and approach to trading success.
Malcolm Robinson
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