To get a computerized system edge, you need to figure out the basic human trading weaknesses and include them in your software. Anyone can buy a trading system these days, but it will have little value unless it is unique and different from the crowd. Here's some easy-to-understand ideas I use that add in the human fears!
What’s another advantage to using a trading companion for day trading the e-mini futures contract? The human emotions are sometimes unreliable for trading. We are all basically hardwired the same. I can tell you how you will react because it’s how I do too. You need to write a program that does the opposite of the normal human tendency.
Panic is a perfect example of human tendency under stress. Another is releasing ourselves from pain as quickly as possible. A third is the desire to enter comfortable situations. A forth is fear of compounding a mistake or painful situation. And a fifth is holding on, thinking good times will never end. All these are clues to what you need to find in the e-mini futures market and program into yourself and computer.
You want to identify things are against the human grain to do and are painful to do - remember that!
What could possibly be an e-mini futures trading method that would simulate these ideas? First, a system with no stop loss orders will provide the requirement of not running away and releasing ourselves quickly from pain. Am I crazy? Maybe… but you need to be different, even if only a little bit.
Next, how about adding to a loser instead of running? Well, at least add once or twice, compounding your pain - but having an eventual “uncle” point, which is also painful. And how about entering a market when they are bleeding in the streets - when you are SURE it’s going to keep going? And, how about scaling out half the profitable position when we think the e-mini market will go on in our favor forever?
All these solutions sound crazy and opposite the conventional trading wisdom of going with the trend, limiting losses, using stops, never averaging down and letting your profits run. The conventional wisdom is meant to make us feel COMFORTABLE! You want to feel comfortable? Then spend a day at the beach or stay in bed. You want to trade e-mini futures contracts and make profits? Then expect to be uncomfortable, to sometimes feel pain, want to run and second-guess yourself!
I have some friends who put up radio towers for a living. I love to climb them. A 200' climb is easy. I remember the first time I climbed with an experienced buddy. I could barely make it up to 20’ before I froze and hung on for dear life. I had this crazy notion that I had to stay below the point where I could fall and die. I figured 20' was the limit.
My buddy, at 100' looking down, just laughed at me and said, “You wanna be a woman all your life?” HA! I saw that he could do it, and so could I! I worked my way higher and higher until I could finally climb to the 200' top alone. Over the next twenty years I’ve climbed thousands of times and can now climb without fear. Some of my non-climbing friends remark… “You’d never get me up on that tower!” We are all programmed to fear heights. Unless we get desensitized, it will always remain this way.
I feel my e-mini futures trading companion is the equivalent of my climbing buddy. My computer and program show me how it should be done. It has no fear and can take on positions with nerves of steel. It’s what we would all like to be. The computer is all business, getting the job done. No second-guessing. No fear of averaging down. No greed stopping it from scaling out half the profitable position early in case the market reverses. Isn’t this the biggest problem - not knowing when to get out? I know it is for me, so it is for you too.
The important thing is that we need each other to succeed - I need the computer and it needs me. More on this next.
Part Three of Four Parts - Next!
There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.
Thomas Cathey - 27-year trading veteran heads the managed futures division of Thomas Capital Management, LLC. View his market forecast TimeLine Trading charts and get his complete 44+ lesson, "Thomas Commodity Trading Course - all free." http://www.thomascapitalmanagement.com/commodity/welcome.htm Main site: http://www.ThomasCapitalManagement.com
