Emotion

Many good trading systems will work if followed, all will fail if emotion and ego enter the trade. The only tool that will make money in a market is a system. There are many systems that will make money, but they are hard to find and use. It’s also all but impossible to learn a system from a book, there is too much interpretation which gets shaded with our own personalities. For example, I can look at any chart, for any time frame, and find technical analysis patterns to back both buy or sell calls.

The enemy of any trading system is human emotion. Our system will take emotion out of any trading decisions as long as the trade is executed when it is supposed to be. Even with a system that gives definite long or short calls, people will delay if the trade is against their natural inclination, and miss the move. This is why trades are done with computers, humans are kept out of the loop because of our emotional nature.

Everyone has a natural inclination to be either positive or negative. You must understand which type of personality you are and understand how you will feel executing trades and how you will feel once in a trade. My inclination is negative. I will execute short trades with no hesitation, but will delay a long trade sometimes to the point of not getting the trade in on time. Once in a long trade, I feel nervous and am itching to get a signal to go short, in a short trade, I feel comfortable and will sometimes overstay the trade. Knowing this I try to live with the nervousness and ignore the comfort. Emotion is even harder to ignore on days that that emotion is correct. For myself those “I knew it” days are days when I’m long and the market goes down, it’s all I can do not to reverse my trade against the system. It takes a strong rational mind to stay the course and let the market dictate the trade.

Being emotional beings I also feel that for your own mental well being you should not constantly be following the market. Since our system will only make one trading call near the close of the day, I think its best just to see what the call is, make the trade, then get on with your life. Don’t live and die with every tick of the market, it’s not worth the negative health effects.