System Addicts Anonymous

...walks up behind the podium and adjusts the microphone.

Hello everyone. I'm Capitalist. And I'm a... I'm a system addict. Actually, I'm a recovering SA. I no longer find myself staring for hours at every cute new system that comes along and shakes its curvy indicators at me, enticing me to take it home and backtest it for a few hours.

I had a minor revelation about systems while I was out for my evening walk tonight, so I thought I'd offer some advice for those other struggling SA types that might be out there on the Factory. Here's the story.

A few months ago I took a very good trading course (offered by another FF member actually) and found that it helped me out quite a bit. We'll call this system "A." However, the way the system had to be traded just didn't suit my own style, and I felt that it was keeping me out of some potentially profitable situations. So I took some of the concepts I had learned about in system "A" and created a system that was more suited to me, which I'll call system "B."

I just started a journal here on FF and my initial entries have been about system "B." However, as I was walking along I realized that system "B" was really only good for a specific kind of common market situation. There was another kind of market situation though that it didn't really address. So I started thinking about a way to do that and I was well on my way to developing system "C!"

That's when I started to get concerned that I had fallen off the wagon. Was I about to start jumping from system to system again? Would the people at Forex Factory think I was crazy if I introduced a new system in my journal while at the same time making changes to the first one? Was I crazy? Would Luke leave Laura?? Oh, wait...got stuck in the 80's there for a second.

Anyway, after thinking about it for a minute I realized that I was ok. And the reason I was ok is that I was creating the new system in order to address a clear and specific problem or market situation. System "A" was good with trends but I switched to system "B" because system "A" required too much screen time (among other things). But system "B" was only good for very tight trending channels which aren't pulling back significantly. OK, so for situations where there is a big pullback and a potential trend reversal I have system "C." That's ok. That's all right. I have specific tools designed for specfic jobs.

And thats how to approach systems I think:

1. Each system in your trading toolbox should be there because it solves some specific problem or addresses some particular kind of situation. You should be able to explain what the system is for in one sentence.
2. Even if I have several systems, I don't get confused about which one to use, because each is for a different situation. I don't pick up a hammer when the job requires a wrench.
3. I don't clutter up my trading toolbox with systems that I'm never going to use for anything. I may need a hammer and a wrench, but I sure don't need a left-handed double-helix phase inversion rheostat zooblunking tool!

Well that about wraps it up. Hope this helps someone, and all thoughts are welcome!

And how do you guess which system to pick on a particular market condition?

The same way you would "guess" whether to use a phillips head screwdriver or a flathead screwdriver. You look at the screw. If it has a phillips head you use the phillips screwdriver. There's really no guessing about it.

That probably doesn't help though, so here's a more market-related example. Right now I'm working on two different systems. They use a lot of the same concepts, but they are for two different situations.

The first system is for dealing with a situation where there is a tight trend on a chart that is showing little tendency to pull back toward toward the MAs. For example, the EUR/USD or the USD/CAD for the past few months. In cases like that I'm interested in being able to scale into the trend as it continues moving. So for this situaton I'm not looking for retracements or anything like that. Instead I add to positions at new highs/lows, on strength.

The second system deals with a situation where a trend has a major pullback. If it pulls back enough, it gives me an indication that we have a potential trend change on our hands. For that type of situation I use a different system. Look at USD/CAD again on the daily. Up until a few days ago, I would have happily been using the first system with this pair, but at this point I see that the market has changed my nice flathead screws to phillips head screws. So I may have to change screwdrivers now. Now it's time to employ my second system which is all about trying to catch changes in trends. (Actually this isn't quite true YET for USD/CAD; it needs to move up a little more before the setup in my second system is actually triggered, and even then I may not get an entry).

But the specifics of my systems aren't the point of course. It's the idea that each system has its own specific use. Just like a hammer has a different use than a wrench does.