The Secret of Trading Systems

[Excerpt from: The Undeclared Secrets that Drives the Stocks Market by Tom Williams (2000), p.89, 91. Available at http://www.tradeguider.com/secrets.aspx]

"I WANT TO BECOME A FULL TIME TRADER"

This is the dream of many. The problem is that it is very easy to be wiped-out in the learning process. Some lucky people have the skills to make money from the stock market and keep it, knowing very little. This is because they are skilled at money management and taking risks. They know how to handle a risk - bookmakers generally make good traders because they are skilled and practised at risk-taking and know how to handle it.

There are no magic systems in the stock market. If there were, every move would be very rapidly discounted. We know this because there are some of the sharpest minds in the world at work within the stock market. We have to assume that any easy way to trade the market would have been spotted. Many of these systems are the product of the eye's ability to recognise patterns. It sees what it wants to see and ignores the many instances in which it does not work. The intuitive response is fine as long as you do not attempt to computerise and build a working system around it. If you do, you will find that they fail as often as they work. The mechanical system is not fooled by an innate selective pattern recognition capability.

I have met several successful traders who say they are using a so-called secret system which is making them money. This is 'their' secret system; it is working for them. But in every case, if you look into it more closely [once they have shown you the system], what they have overlooked or will not admit, is that they have become good traders in their own right. It is their skill as a trader that is making them money, not the magic formula. The magic formula is acting as a psychological security blanket to them, without them realising it, because they do not always follow what the formula is indicating.

...We are not going to offer you anything more than a few hints and tips because you must obtain or develop your own system. No two traders are alike, no two have the same resources and needs. You need to develop your own system, tailored specially to your own trading style. In other words a system that suits you.

Many books written about the stock market always remind you to paper trade, practice, practice. This I agree with, but paper trading is like having a practice fire drill, it is never quite the same as the real thing. However, the one point everyone seems to miss about paper trading is that those traders who can paper trade successfully in the first place already have a special gift. This gift will allow them to sit there all alone week after week with nobody but themselves to see, or even care about, the results, and not rushing into a real trade impulsively.

To trade strictly within a system, with no real profit or loss involved, needs a special type of personality. It is these same skills that are needed to be a successful trader when trading for real. Those traders who cannot paper trade in the first place can be warned well in advance that they are unlikely to be successful trading the stock market. They lack the skills needed! You need patience, practice, experience, knowledge, concentration, you need dedication and an uncontrollable urge to be successful and you need to acquire all these qualities before being wiped-out by impulsive trading.