My Favorite Tip For Successful System Trading

My Favorite Tip For Successful System Trading

May 9th, 2018

I love Moneyball.

For a lot of reasons.

I love it because it’s Michael Lewis’ true story of the analytical revolution in sports (everything done today comes from this book/movie).

I love it because it skewers the closed-minded old guard.

I love it because it challenges us to find new, better ways to think about our lives.

And mostly, I love it for how Billy Beane (played magnificently by Brad Pitt) ran his baseball team.

On one hand, Beane cared deeply about the success of his team.

He cared so deeply that sometimes, after a loss, things got hit with a bat.

On the other hand, he never watched the games.

While his team was playing, Beane never watched. He worked out or went for a drive or did anything that would keep him from looking at the game.

When he hired his new assistant, he gave him one simple instruction: Just call me when it’s over.

Caring deeply and not watching may seem like a contradiction. If you don’t watch, you don’t care, right?

But actually it’s the opposite.

If we’re going to be successful system traders, we have one massive obstacle:


We’re the problem.

If we have the data and believe in the methodology that produced this data, then success is inevitable.

All we have to do is not screw it up.

How do we screw it up?

By watching trades.

If we watch our system take trades, we’re not going to like it.

“This trade isn’t going to work out.”

“The robot never should have taken this trade.”

“It’s almost at the target, I’ll just take it out here.”

And guess what?

When we get involved, we get emotional. When we get involved, we think irrationally. When we get involved, we change what our trusted system produces.

And not for the better.

For a long time, I would watch my robots take trades. And inevitably, when I watched, I did something stupid.

Because of me, profitable trades turned into break-even trades. Because of me, profitable trades turned into small losing trades. Because of me, losing trades were made bigger because I panicked and took it out before it came back.

But that’s not the worst of it.

When I watched trades, my angst went through the roof. Living with a losing trade all day was horrible, and when the loss was finally booked it felt like a sharp stick in the eye.

After watching a loss closely, the desire to avoid that pain again makes it likely that we’ll lower the trade size on the next trade, which, of course, will be a winner.

Or, after watching a loser, we might be so strung out that we decide to just turn the robots off.

I’m not living through that again.

But all of that is fixed by not watching the trades.

If we’re not watching the trades, we won’t take them out early or change the trade size or make an emotional decision to stop trading.

If we’re not watching, the system can do what it’s supposed to do–produce the numbers that the data said they would.

And you know what?

Looking at a loser after it’s over is not NEARLY as bad as watching it live. Seeing a losing trade after the fact isn’t fun, but it’s completely doable.

Not watching allows us to just stick to the numbers without pride or prejudice.

And that’s how a system becomes successful.

It turns out that the secret to successful trading isn’t the system we trade.

The secret trick to trading a successful system is to be like Billy Beane.

And never watch.