One of the best routes to profitable trading is through mechanical system trading. Just as most Filipinos love visiting Mang Inasal, Jollibee for their normal food fare, it’s funny that we never thought about using the same franchise system in our trading. (Or I suppose, it took me quite some time and a lot of wasted efforts and money, before realizing that having a trading system and executing based on such systems are the way to make money in the markets).
Similar to most franchises, winning traders need to have only 3 things:
1.) Trade tested systems and patterns systematically. – This requires knowing which charts have a high probability of working. Do you have a winning formula? Do you have your winning recipe in trading? This requires learning which positions in the markets have high edges. Perhaps, a beginning trader needs to understand why charts work in the first place (I’ll discuss this in an educational thread).
2.) Trade the same way, every day, with a high degree of consistency – Similar to McDo, Jollibee, and Mang Inasal- Just trade with a similar amount of loss allocated for each trade. Trade as though you were just cooking burgers. One tomato, one lettuce, and one patty with two buns for your burgers- 20% basura, 30% bluechip, 30% mining, 20% cash reserved for new trades or whatever recipe you have for your trading. Employ similar risk/reward, stop losses for each one.
3.) Execute that winning formula with high fidelity and regularity – Cook your trading burgers in medium heat — and allow the trading gods to reward your batches of burgers over time.
Also, most of us must have heard this long enough, but I’ll repeat it again. “Always have a trading plan.” But what is a plan? In truth, plans are little more than interwoven set of rules, or in this term, just a recipe for trading. Winning traders are rule-governed. The presence of rule governance lends order to an otherwise chaotic process.
In many instances in trading, a few seconds spell a huge difference between success and failure. When our trading platforms breakdown and execution suffers, the peak performer has a decision tree mapped out in advance, adapting to situations rapidly and decisively. By summarizing years of experience in a few statements, rules and plans promote such efficiency.
“Rules enable us to stay grounded in proper trading practice regardless of the mindstate we are occupying at the time. ” – Brett Steenbarger
When tickers are flying at warp speed in front of your screens, an experienced trader doesn’t react, but acts like a computer triggering buys based on conditional rules. Did the stock trade with large volumes at higher prices? Did it break above a key resistance line? Did it break these levels with ample volumes? And so forth…
It may seem several times, just an adrenaline rush for most amateurs, but professionals recognize that highly emotional states leave us, humans, more vulnerable to lapses in concentration and impulsive behavior.
In a very real sense, staying rule-governed is a way of staying focused and rational.
– Do you trade like Mang Inasal?
– The Faceless Trader