You’ve created a solid strategy by backtesting and you’re trading it live.
You assumed you thought of everything.
But now you’re in a trade and you realize it’s a situation you didn’t consider, so you decide to use your intuition and override your system.
You can guess what happens next – your decision to override your system ruined a perfectly good trade.
I worked with one trader who could not stop manually overriding his strategy.
And his results were inevitably worse than if he simply let his trades play out according to the system he designed.
“I just need to be more disciplined” he would tell me.
And I assumed that was correct – but the overriding continued.
Instead of cracking the whip on this discipline problem, I had him walk through an example of his thought process as he overrode his plan in a particular trade.
I realized this wasn’t a matter of poor self-control – he wasn’t overriding out of pure emotion.
There was sound reasoning for each of these override instances. The ideas here were the seeds that could turn into viable improvements in this strategy and even new unique strategies themselves.
So, instead of trying harder and harder to muster up enough discipline to follow the rules, we took a completely different approach.
We turned this lack of self-control into a process to generate new ideas.
Whenever he felt the need to override the plan, he would use that energy to document the situation – take a screenshot of the chart, make notes about his theory, etc.
Then after market hours, he would treat it as a new idea to backtest and track down an answer to.
Over time this turns into a steady stream of new ideas – potentially profitable ideas to test.
He turned his lack of self-discipline into an advantage.
Fast forward several weeks and this same trader mustered the courage to ditch his day job and trade for a living.
-Dave
