Troika of trust

The other day I posted that when it comes to the Troika of trust you need to:

1. Trust your robot
2. Trust your strategy 
3. Trust yourself least

If you assume any type of a systematic, process oriented approach to the market the Troika of Trust needs to be seared into your forehead because it is probably the truest trading thing there is. Here is why.

Trust your robot.

Yes, yes and yes. Unless it is programmed badly and poorly tested, software is always better than you are in two very important ways. It will execute much faster and it will never make errors in size, risk wrappers or entry and exit criteria.

How many times have you hit the buy button while meaning to sell?

How many times have you entered size that was 10 times your intention?

How many times have you forgotten to add a stop or worse a take profit only to see the underlying quickly reach the target and retreat before you could lock in the gains?

The robot is much better than you at all of those actions, but perhaps the best thing about the robot is that it will always trade your setup whether it takes one second or a million years to actually materialize in the price action.

How many times have you rushed your entry because it looked “good enough”? 

How many times have you chased your entry because it  was “still valid”?

Exactly.

You have a strategy. Let the robot trade it.

Trust your strategy.

My partner Kathy has been trading Zip for years. It's a continuation strategy, so naturally it falters when markets become range bound or zig zaggy. But she stays faithful to her model because trading momentum in FX has proven to be a superior approach to long term gains. Still, anytime she has an off week some of the new BK members begin to question her every move. In the meantime the ones that have traded with her for a while know that this is just part of the process. By the way, she is up 3700+ pips over the past 12 months because she never waves in her approach.

The point is that any trading strategy - and as I’ve said a million times before, there are really only two - mean reversion and continuation - is only as successful as the trader following it. That’s why ironically the single most important element in trading is one that is almost never discussed - faith. Yes, as much as we pooh pooh the idea of faith in our modern, rational, secular world - and that is certainly a good thing - we still need to believe in order to act.

Of course belief in trading should come from empirical evidence not just wish fulfillment, but markets aren’t natural phenomena, they are social constructs. We can’t replicate  the same experiment a thousand times in a row like engineers do. In the market, the results will always be slightly different each and every time and it's this ability to navigate that variance within  the framework of your strategy that determines if you will win or not. Which brings me to my last point.

Trust yourself least.

If you are trading in any sort of systematic fashion there is nothing more dangerous than changing course in the middle of market action. Practicing tweaks and adjustments on live market prices is a recipe for disaster every time. 

Trades not working out? Walk the f- away. 

That was the universal message of all my guests at Traderfest this year. Anthony Crudele talked about the ability to “read” yourself and retreat from the market quickly at any sign of weakness in your trading. Denise Shull discussed the Triumvirate of Trading Trouble - sleep, sickness and stress and noted in no uncertain terms how the latest science shows that if we are operating in any one of those three states our ability to make good decisions pretty much disappears. Jason Shapiro even said that he will start doing dreaded paperwork whenever an impulse to do a non-process trade strikes him.

I find that the only time I can create effective improvements to my approach is on the weekends, when I have no live market action to entice me into a series of stupid trades. Without the distraction of the market I can really take the time to question my assumptions from every angle and test them hard against the data which helps me to understand the true nature of the risks embedded in the new approach. That in turn gives me more confidence in my decisions and faith in my strategy which hopefully will then be executed with even more profitable results by my robot.

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