Mechanical Systems

Here's a question that came from one of my students, "Joe! Have you ever found a mechanical system that really works?"

Most traders move from trading system to trading system, and trading method to trading method. Over a period of time, they may find one that suits them--one that is comfortable to run, and tests well either via back-testing, or in real-time. Some traders never stop looking for the "right" method or system. THAT is a problem. There are many systems or methods that can generate nice profits over time. To settle on a trading system or method that's right for you:

• First, you have to believe in the process by which the system or method generates trades.
• Then you have to feel comfortable that the method or system is right for you.

But do not delude yourself into thinking any method or system will work forever. You will always have to change and adapt to the realities of the market. And very IMPORTANT: Trading a method or a system you will never really learn how to trade. You will always depend on the method or system as a crutch and you will find yourself having to adapt and adjust it to the realities of the market.

Maybe you're a visual sort of person and you are drawn to Candlestick charting. Take the time to understand why the patterns mean what they portend to mean. Do not just accept the "picture," as it appears on the chart. Go deep.

If you choose a money manager to do your trading for you, realize that the manager has actually become your trading system. In that case you will need to trust his/her judgment 100%. This can be a dangerous choice in that you are giving up control to another. Choose wisely.

If you choose to take your trades by following a trading guru, understand where his or her "godliness" is coming from. Again, be sure to choose carefully.

Whichever system or method you decide to go with, back-test it. In today's modern world of software, there's no excuse not to run all the back data you can through your system to see what the results would have been. Pay the most attention to how the system has worked in the last 2-3 months. Don't overly rely on the on backtesting. Backtesting is no match for real trading.

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