Don’t you wish you could look into the future and see where your account would be if you stuck to a particular strategy or system without fail for the next 10 years? This is the magic of back testing: Pretending it was 10 years ago and you are about to embark on an odyssey to become a hugely successful trader/investor. Except that you don’t have to wait for the 10 years to actually go by, you can see them instantly via the click of a mouse, hey presto, viola!
Teachers talk about discipline and sticking to a system, but why do so many fail, isn’t it easy to just follow a tried and tested method?
Well it a bit like watching paint dry too, I find back testing exciting, but perhaps I am weird, however I find trading boring. But boring is good; boring doesn’t have too many emotional swings. It’s the way it should be. I don’t get anxious back testing paper money..ever….so why should I get anxious with real in the moment trading.
The way I see it is that the only way to have the discipline to trade to success is to be able to have proof that your method works. As human beings we are very flawed, as our emotional swings call on us to make irrational in the moment decisions that usually end up in us taking a bigger loss than was necessary.
If I did not have a robust system I would be driven crazy on a daily basis trying to time the markets. The tops and the bottoms, the news, the earnings et al. Thankfully I have learned (and continue to learn) that risk control, backtesting a system and following it, and picking great companies is my recipe for success.
Then there is personal integrity and how it relates to trading success. The hardest part of integrity is keeping our word to ourselves; we often find it much easier to keep our word to others. For example, setting a task within a time period and not completing it. Being in integrity with ourselves is about keeping our word and our promises to ourselves. It relates to trading in terms that we have a system a set of rules, but when we break them we are not in integrity with ourselves, it causes a disconnect, causes us to beat ourselves up with our little tyrant inner voice. Bottom line, it’s not healthy.
There will be winners there will be losers, but you cannot be out of integrity should you do what you said you were going to do and stick to your system and promise yourself that you would not speculate on something else. Trading is difficult, more difficult than buy and hold investing. But the rewards are bigger if your strategy is robust and tested.
This is the reason I will look back in 10 years from now and say, well done, you have grown your account consistently; you have stuck to a system, kept your mistakes to a minimum and promised yourself that you will not speculate out with your system. In other words, I kept my word to myself. Now that’s powerful!
May today be a profitable day for all of us…