I believe system design is critical to successful trading, but actually implementing a trading system is the most difficult step towards profitable trading. That’s because in most cases the roadblocks to implementation are psychological. It’s relatively easy (and fun) to sit behind a computer screen, looking at charts, analyzing data and crafting a trading system. I think that’s why so many traders emphasize system design and return back to it when things are not going well. But, from my experience, it is improper implementation that stops traders from being fully successful. I know that’s what gets me.
There are several types of psychological deterrents to implementing a trading plan. Two of the most obvious are greed and fear. A little success creates the desire for more success so overtrading becomes problematic. Conversely, multiple failing trades in a row can create fear of continued loss resulting in missed trades that ultimately would have been profitable.
Other less obvious psychological deterrents include the desire for the excitement of trading and the desire for calm and relaxation. I have had problems with the latter this year. Theoretically, this year my system has been very successful. However, as implemented, I have not been as successful. Why? First, I made several trading errors this year errors due to inattentiveness or being in a hurry. Although my systems are mechanical in nature, there is some room for human error. I use EOD date, so if I do not run my charts and calculations every night I can miss a trade. But, at times, I just don’t feel like running my charts because I have other things I want to do. I’ll wait until the morning, saying to myself, “nothing big happened today in the market, I’m not missing anything.” Wrong. This year, I missed several significant, profitable trades because of inattention. Second, this year I have made several loosing trades due to simple implementation error…my systems had only been 80% or so programmed and I had to go through a manual final filter before placing a trade. In two big instances I missed the filter and placed a trade that shouldn’t have been. The reason behind these errors was the same – I had other things I wanted to do so I paid less attention than I should have.
I have since eliminated some of the possibility of error through better programming of my systems (I currently use Amibroker but am thinking about switching to Tradestation for automated implantation). I have also made renewed goals to successful implementation to reinforce the importance of strict adherence to correct procedure.
My goal and hope is that my 2010 trading plan will be implemented correctly and completely so the success of my system and my success are the same thing.
