Second Guessing systems methods

[Trading Education Buyer]

At the most basic level, people must trade by processing information. Unfortunately, we're not very efficient information processors. We have a lot of biases that enter into trading decisions.Those biases are all about adding complexity to the world.The second area of disadvantage for traders is emotions , stress ,beliefs and personality .These affect trader's performance in real time.

Is it really that simple?

Consider the trading rules that work: 1) follow the trend; 2) let your profits run; 3) cut your losses short; and 4) manage your money (i.e. risk) so you can stay in the game. If you design something around following those rules, you'll make a lot of money.



Trading systems liable to human input and thus carry the tendency to second guess the pre-set parameters, hesitate to execute indicated trades, or simply miss signals because the trader is distracted for any reason.Humans are subject to distraction or fatigue or hesitation, they offer a less disciplined approach to trading volatile markets while also possessing the negative advantage of the human mind , they are not able to make trading decisions 8 hours per day, without getting tired and self sabotaging .

Develop a Trading System That You Won't Second Guess or Abandon
It's important to construct a set of investment rules that generate signals in which you are confident. Imagine that you're using a system in live trading and the last five trades have been losers. Your trading capital is depleted and your confidence shaken. Are you going to make the next trade without question?

Consider the case of a huge drawdown during an open trade. Your profit has turned into a loss. Will you stay with the current rules or jump ship? Can you hold on for a vague promise of a profitable outcome in a few days or weeks? That's unlikely.

Humans are very clever and we get clever , when it is not in our interests .When given a highly profitable system , we second guess systems , because we are smart and smarter than the creator of the system.We are like monkeys and do monkey business on live accounts .It is called self sabotage.


We are curious and try new things , inventions and do the same in trading.
We get too clever for our own good in trading ,like these monkeys.

https://www.elitetrader.com/et/thre...al-and-possible-for-succesful-trading.304404/

https://www.elitetrader.com/et/threads/dunning-kruger-traders.303402/


https://www.elitetrader.com/et/threads/self-sabotage-for-traders.305072/


https://www.elitetrader.com/et/threads/the-most-important-skill-for-succesful-traders.304679/

https://www.elitetrader.com/et/threads/traders-trade-emotions-they-dont-trade-methods.303238/

https://www.elitetrader.com/et/thre...-processing-information-about-a-trade.303149/


https://www.elitetrader.com/et/threads/loss-aversion-trading.305004/

https://www.elitetrader.com/et/threads/fallacy-trade-the-plan-plan-the-trade.305108/

Brokers statistics don't lie

https://www.google.co.uk/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=95 of traders lose money

Despite there being 3,000 free systems /methods , traders are not really successful.

https://www.google.co.uk/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=free trading systems

 

[Trading Education Buyer]

Fear of losing can lead to further losses
Fear of taking losses can ultimately lead to even more losses. The typical behaviour of a trader will be to close trades early, either when the trade has temporarily gone into a loss or a small win, and not letting the trade run its full course.When a trader has a fear of losing, they try to avoid them. This can actually increase losses.

For example, a trader may open a trade and place their stop, say, 20 ticks away – based on the strategy they use. In other words, there is a technical or fundamental reason for it being placed where it is.

However, a trader that is influenced by fear may close the trade prematurely, simply because the trade temporarily goes against them. So if the trade goes against them by, say, 10 pips, then the trade results in a 10 pip loss. If the trade turns out to be a winner, then the trader has just turned the winning trade into a losing one out of fear.

Another scenario is when a trader closes their trade as soon as it has gone into profit, out of fear that they can lose that profit. If the trade then goes on to hit the target , then the trader has reduced a full winning trade down to a much smaller win.

This behaviour ultimately turns a profitable strategy into a losing one, because the trader reduces the amount of winning trades and/or reduces the profit overall because of fear of losing.

 

[Trading Education Buyer]

Conclusion
As a market timer, you must move from a fearful mindset to a mental state of confidence. You have to believe in your ability to execute every trade, regardless of the current market sentiment (which is often at odds with the trade).

Knowing that the timing strategy you are following will be profitable over time builds the confidence needed to take all of the trades. It also makes it easier to continue to execute new trades after a string of small losing ones.

Psychologically, this is the critical point where many individuals will pull the plug, because they are too reactive to emotions as opposed to the longer-term mechanics of their timing strategy.

And typically, when traders pull the plug and exit their strategy, it is exactly at that time that the next profitable trend begins.


Fear of Not Being Right
Too many market timers care too much about being proven right in their analysis on each trade, as opposed to looking at timing as a probability game in which they will be both right and wrong on individual trades.

In other words, by following the timing strategy, we create positive results over time.

Fear of Missing Out
Every trend always has its doubters. As the trend progresses, skeptics will slowly become converts due to the fear of missing out on profits or the pain of losses in betting against that trend.

The fear of missing out can also be characterized as greed of sorts, for an investor is not acting based on some desire to own the stock or mutual fund other than the fact that it is going up without him onboard.