Trading Tip 12: Maintain Your Perspective

System trading can be very rewarding but you need to know how to avoid the pitfalls of system trading if you want to be successful in the long run. You need to know what to expect when trading a system.

Many traders think that when trading a system their equity curve will consistently going up, like having an ATM in your front yard.

In reality you'll have some days and weeks when the system outperforms and a period when the system underperforms.

When trading a system you need to maintain a long term perspective.

Trading a system means playing a number's game: You need to place at least 40 trades before you can look at the performance of the system. Most traders only evaluate their performance once a month and try to have as many profitable months as possible. Hedge Funds evaluate their performances quarterly or yearly. If you look daily at the results of a trading system it will drive you crazy.

Sure, nobody likes going through a drawdown. But losses are part of our business and you need to deal with them. The famous Richard Dennis once said: "It is totally counterproductive to get wrapped up in the results. You have to maintain your perspective. Being emotionally deflated would mean lacking confidence in what I am doing. I avoid that because I have always felt that it is misleading to focus on short-term results."

Many traders focus on short term results and lose their perspective. That's why they fail: They experience a loss or a bad week and shop around for the next system. And while the trading system they just abandoned is recovering from the drawdown, the new trading system might produce first losses, and they start looking for the next system.

They are like the dog chasing many rabbits: At the end of the day he's totally exhausted and didn't catch a single one.

Maintain your perspective!

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