Page 9 - Module 2_The_Human_Element

Module 2 -Lesson 1 – the human element

If you have 3 trades that look exactly alike, and they are all losing trades, it’s imperative that you
make it a must to examine them and change your approach. If you don’t, the probability of repeating
it and losing again is extremely high.

And above all, never forget that a trader must do whatever it takes to stop. Keep calm and try any
one or all the following:

▪ Getting up and moving is the fastest way to stop a pattern.
▪ Go for a walk and come back.
▪ Check if you followed your system.
▪ See if your system needs any improvements and apply them.
▪ Stick with your system and accept that days like this do happen.
▪ Trade smaller amounts until you make profits again.
▪ It’s important to avoid bad patterns at any cost. Do whatever it takes to break them.

8. mechanical trading systems

Mechanical trading systems are automated software systems looking for technical market indicators
and buy or sell accordingly – sometimes without any input from a human operator.

They are called mechanical because a trader will take the trade regardless of what is happening in
the markets. In theory, this should eliminate all biases and emotions in your trading because you
are supposed to follow the rules of your system NO MATTER WHAT.

Goals of your mechanical trading system
When developing your mechanical trading system, you want to achieve two very important goals:

▪ Your system should be able to identify trends as early as possible.
▪ Your system should be able to avoid you from getting whipsawed.

If you can accomplish those two goals with your trading system, you have a much better chance of
being successful.

Benefits of mechanical trading systems
First, any profit you receive is because of value added work – you set up the system in an intelligent,
informed way. Like any software engineer, you had to do coding, back testing, forward testing, and
assume the responsibility for monitoring your program. All of that represents value.

Second, by accepting the profits for your system, you also assume the risk. If you designed your
system well, you will do well, but if not, you also accept the tab. This risk is another part of the value
that automated systems add.

Third, well-designed systems do perform a constructive role for the market, because they iron out
volatility and push prices to more consistently represent value. A similar role is performed by
independent, human actors, so what is wrong with having a computer do it instead?

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