Chasing Your System…the Never Ending Saga of a Hand Trader

Each Saturday a mate of mine, ( I just wanted to sound British for a moment) writes a blog concerning his weekly review. I would like to thank Adrian for having the fortitude and discipline to actually write each week, God knows I need help with that. The last few months @adeyf69 has been poring out his soul on making changes to his trading. He has been trying to remove discretion and become more systematic in his strategy. While working on using automation he is trading his system by hand. So in an effort to remove emotion by becoming more systematic he has discovered that emotion still permeates what he does. In this blog post he identifies his problem as himself. Talk about looking in the mirror. The thing is he has been looking in the mirror for months now and doing a great job yet he finds his biggest obstacle is himself. He puts in this way:

And I know from all the testing and the past results that it has an edge. The past results have only been marred by human operating error.The lack of confidence in my trading system, comes from the lack of confidence in myself. This comes from past experiences and that my stats constantly show that I am the problem when it comes to execution.

I would like to focus on that statement for a moment, particularly where Adrian states that his stats constantly show him to be the problem. This comes from a failure to execute all of the trades. Been there done that. The system always seems to outperform us doing it by hand. I am quite positive that Adrian isn’t alone in this regard among either system or discretionary traders. I know I have been there and understand that this will always occur. Deciding to trade more systematically is something that I believe is a good thing for the vast majority of traders. Thinking that this will remove emotion is naive. Even if your system is fully automated their will still come times when emotion takes a seat on the bench. Trading isn’t about removing emotion it is about being comfortable making decisions and not fearing outcomes, and yes, this is emotional. Most anyone that has been trying to trade successfully for any decent period of time can recite and regurgitate all the trading platitudes related to this. If you don’t, just spend one week on fintwit and you will drown in them. If that doesn’t kill you, then all the re-tweets and props given to those who regurgitate those platitudes surely will finish the job. So instead of giving you some more of that I will try and give some actionable information on ways to close the gap in performance between you and your system. Remember at all times what I write is just my two cents and to some of you it may only be worth that. I am not a math guy or a psychologist. I am just a guy a with a tons and tons of hours behind the screen making mistake after mistake that somehow managed to learn something.

Let’s get started with an exchange that took place between Adrian and a reader of his blog. I am going to apologize upfront if anything I write pisses either of them off. I have had numerous conversations with Adrian so I am sure he will take it as it’s meant.. well meaning. As for any others I can only hope they feel the same. It is not my intention. Here we go..

Nobody should be impressed with Adrian's ability to disregard relevant information. This is akin to sticking ones head in the sand. In one word.. wrong. Then Adrian states he is more annoyed at missing winners than losers! Wow, what a revelation we all don’t mind missing losers. WTF. Yes, he tries to recover by stating in his review time he looks at things in a somewhat different light. Oh really, just annoyed? Damn mate you need to be pissed off. That whole statement is wrong. You are letting the outcome determine if or how you are going to correct a problem. There is a problem here. Fear. Fear of loss. Our emotions are just irrational fears usually always traced back to either fear of loss or fear of missing out. Just being annoyed isn’t going to correct things. How about all out war on it? Aren’t you sick of always circling back to the same problem because the underlying root cause has nothing being done to address it. C’mon man.

Adrian ended his blog post with a series of steps to try and remedy this problem. The problem I see, he is only treating his problem as purely emotional and trying to solve it with only emotional band-aides. I don’t see anything that relates to loss or any tools or tactics which try alleviate the fear. I am not bashing meditation or positive self talk or being mindful. These are all have their place in trading. What I have a problem with is that I don’t get how meditating more helps if you are already meditating. Positive self talk is nice and we need to be positive but that isn’t solving a problem it just makes you feel better while still having the same problem. I am convinced that many losing/struggling traders are masters of positive self-talk but they still don’t master their trading. Mindfulness is quite the same, it is a wonderful thing to be mindful of your problem that’s a great first step to recognize your problem but again does nothing to solve it. Fintwit is loaded with all these psycho babel cures but yet the ones that end up succeeding are the ones that take actual action to cure something not just be all sentimental about it. What can Adrian do to from an actual trading standpoint to try and relieve some fear so he can execute more consistently?

WTF are you scared of? Lets start right there. Oh yeah that scary loss. Are you scared of a loss on that trade Adrian? I imagine he would say no. He would answer about giving back profits from previous trades was the fear. In which case I would say “yup you are scared of losing on that trade.” Get real. It is about that trade. Don’t BS yourself, face it, if you thought that trade would be a winner you would take the entry. Adrian would then probably try and argue his point that it wasn’t about that trade again. Then I would ask him why did you take the trade before then? Did you know that was a winner? He would reply “of course not”. Again I would ask, “ then why did you enter that time?”. His answer would have to be along the lines that he felt like the odds were still in his favor or some other excuse. Be assured that’s all it would be was an excuse. Adrian didn't back test his system with only 5 or 7 trade runs. He looked at as a system over a whole range of trades. He may even know the runs of his longest expected win streak and losing streaks as he should. The question is why at this moment does it pop into his mind? I would guess it because he is still at the account building stage and when building an account we can talk ourselves into doing the wrong thing for the right reasons. In the end he knows the answer. He already said it. The system outperforms him yet he convinces himself that he is making the proper decision to grow his account but in reality he isn’t. Of course if “the trade” turns out to be loser we can easily placate ourselves into thinking we are very smart and did the right thing. Easy to do. Feeds the ego and retards your progress. The other side of the coin though is “the trade’ was a winner missed. Oh yeah talk about a knife to the gut. Fearing loss just cost you a win. The worst part of it is somehow they always seem to be the top shelf of winners not just an average win but a dead on beauty. Annoying right? LMFAO annoying.. you have been here before and you haven't done anything to help you take “the trade” except think about it more and promise yourself you won’t do it again. Good luck with that. Throw your excuses out the f’n window once and for all and get to work find something, anything, that gets you to take the entry. How about you give yourself some positive self talk on figuring something concrete. How about you meditate on actually doing some work and finding something you can live with to get you to execute. Edge isn’t some mysterious thing that you get to pick and choose when you execute. Edge is all about executing in a consistent manner to let the outcomes work out in your favor over time. If you don’t consistently execute how do you expect to succeed? Okay enough ranting now to a real life fix I have actually employed to help overcome fear of loss.

I trade systematically and just like Adrian I am always chasing the system. Get that this shit doesn't end as long as you are responsible for hitting the keys to take entry. It is possible to close the gap and narrow it to where it isn’t as painful or pronounced. My system has parameters that give a signal. Sometimes when that signal came I would hesitate or opt to try and outsmart my own work. Talk about dumb. I spend hours and hours to develop a strategy off the screen then would fool myself into thinking with the ticks flickering I was going to make a better decision in a split second. Dumb ass was what I was. Smarter than my own work.. NOT. So I became pissed off and vowed to just take them. One guess how that worked out. I then decided to get off my ego and actually do something that made sense to me and would allow me to get over my stupid fear. It was all fear of loss..we always hit the keys when we think it will be a winner. So not hitting them boiled down to this one glaring problem.

I use stops since I trade intra-day and am mostly always flat at days end. I knew how much I could lose because I have no problem employing or taking the stop, yet still at this moment I was focused more on the potential outcome which is never in my control anyways. The only thing I can control after an entry is where I exit. That’s it. Got that? That’s it. So it became awfully obvious that I wanted to avoid what I had concluded would be a loss in that moment. Like Adrian I knew this was wrong, wrong, wrong. I did my work. I had confidence in my work. Shit, I was proud of my work. That wasn’t the problem. I trusted that the outcomes over time would be fine. I believed that I was actually helping the performance by not executing. BS total BS. I somehow believed that I was going to use the screen to help. I thought this nuance or that nuance had more relevance than my work. I focused on a stat that I had already known didn't matter or it would have been included. In the end it was just I didn’t like or feel comfortable for any myriad of BS reasons. I knew I had to somehow get comfortable in this uncomfortable situation. That is when I decide to get real and find a way. I decided to quit seeing the trees and start finding the forest.

I started to look at everything from a different view. I needed to think deep and figure this out. Something struck me then. What if I found a way to let the uncomfortable feeling be okay but still could execute. I started thinking about my signals and looking at them from a way that I hadn't perceived before. Why did I have to push the keys as soon as the signal happened? After all I had a ton of screen time as a tape reader. Maybe there was a reason that I was feeling this way. How could I allow it to play out but understand that in the end I probably had to hit the keys and take an entry? If we are honest with ourselves fear of loss is the same as saying the price action wasn’t friendly. How could I make the price action seem less daunting? I came up with using a price band to help. I had a bands that I knew contained the vast majority of the price action. So when I got a signal I would then turn to these bands to help guide me. In my system the same indicator that signals entry can also signal exit. So i started to think about what really is the effect of not taking the signal right then on the signal. I mean some signals I can expect to be in for hours and make many points if it was right. So why was a few ticks mattering? Why was I wallowing in the trees when I knew the forest? I had bands that contained the the majority of price action on a small time frame. The odds of busting through those bands was low, It could happen like anything in the market but the odds were on my side. Why was I at first feeling price was going to run through my entry but then if it didn’t and went in my direction did I feel I missed? Talk about emotional roller coaster. How about I just acknowledge the signal and understand I will most likely have to take but I can actually relax and use the bands to guide me and they will do that 98% of the time. This allowed me to take a step back get away from the trees, let price action maybe get more friendly and thus help ease the fear. I went from focusing on my entry signal being some work of gold to just what it is.. a signal. That’s it. Was it going to kill me or my performance by allowing the price action a chance to get a bit more friendly to my emotions. Was just having a small choice actually so freeing that I stopped fearing the signal? Yes it was. So I didn't care if I got in a point higher on a long if the hold time was going to be hours if right and maybe 6–12 points higher of a target. I knew if price got to those bands I had a plan. Needless to say these bands are pretty close to the price action. So let’s say my “fears” proved to be right and price action was adverse? By using the bands I didn't take a signal and sometimes this allowed the signal to be cancelled(meaning an exit would have triggered)and no entry needed. So get this by using some price action bands that fit my time frame I was able to achieve a much more consistency in my execution. Since that initial discovery I now have added sizing into the equation within the bands also. Net net I now execute with much more consistency with even better sizing and trade metrics. It had nothing to do with self talk or mindfulness it was a trading tool that helped bring it about. A tool that has no bearing on the signal itself just something totally independent. I got out of the trees and focused on the bigger problem and found the forest. It required thinking harder and deeper about remedies that had actionable info. It took work. I quit being lazy and using psycho babel as a crutch.