Method or Man?

I want to start a discussion on the most important factors in your success as a trader. Is it the method of trading that makes the results? Or does the person behind the method have a larger impact when it comes to the bottom line?

I'll start off by saying that both are important. The method provides a framework for the trader to view the market, and is a way for defining opportunity. No method is perfect but for any given market there is a method that fits the price action, and likewise there is also a method that is out of synch with price action. When traders book consistent losses I have to conclude that it is a result of implementing a faulty method. A losing trader is simply doing things in the wrong way, while a winning trader simply does things in the right way and at the right times. Some of that may be the method that is being used.

But often consistency (in losses or profits) is a result of doing the same things under the same circumstances. For instance, a trader who shows slow steady growth to the account with the occasional 50% drawdown is probably taking consistent core action that leads to this type of behavior. Changing the behavior can lead to removing the big devastating drawdowns, and leaving the trader with the slow steady accumulation. I think this aspect of trading comes down to how the person reacts at the gut level to different pressures. The markets do a great job of exerting maximum pressure on the participants at large. The trader who cycles from consistent small profits to 50% drawdowns is probably trading too large of size during those big drawdowns as a result of a faulty (and likely ingrained) decision pattern, and getting burnt on a few trades that take the equity down. Keeping size down in these few situations instead of adding to losses would likely solve the problem. Many other scenarios exist.

In conclusion I think that both man and method are important, but it is probably easier to focus on the method, since it can be objectively observed, while changing gut reactions to external pressures that only occur on occasion may take a lot more work. From my own experience it is very worthwhile to do, however. In the end I feel you need both a good profitable methodology as well as the ability to react in the right way to the external pressures in order to make it consistently as a trader. Add to that perseverence, and a strong conviction as well as adaptability and the ability to spot and take action on the opportunities that present themselves, and you have the qualities that make a profitable trader.

What are your thoughts?

The method is important, as is the man, as in MANagement.
If you had the perfect system, but did not manage it correctly, you would lose.
You need a system that is proven sucessful, and then discipline yourself to the management side of it and you will be successful.

Thanks for your reply Just1Pip. I like your thoughts on system management. How do you differentiate between the system and the management of that system?

If you ask 10 people you will probably get 15 different answers.
Find asystem that you have tested on a demo account. (I know, boring...not real money), preferably from someone that has gone before you, and is making money at it.
There are two way to learn,
1.) By your own experiences (mistakes)
2.) By the experiences (mistakes) of others.
I prefer those that have gone before me, and modify it to me.
It does take time and patience.
Once you have a proven system, you then MUST get control of yourself.
The discipline of ourselves is the weak link to any of this trading, and if you cannot get the discilpline, you will lose your money!
Read this. If it does not work, give me you email address and I will give you 25 MUSTS from a successful trader.
I cedit Linuxtroll for this
http://www.forexfactory.com/attachme...8&d=1168034357
Stan

The better your system is, the less it is dependent on management. Management just makes up for shortfalls in the system. I figure no one will agree with this though.

I don't disagree with you at all.
However, there better be a managment system regrdless of the trading system particularly to a newbie, as there are no trading systems that are 100%. IMHO

Thanks for your comment. My views are actually quite similar. But to clarify, by "better' do you mean more efficient in pip terms, or a system that takes more contingencies into effect, is adaptive or somehow responds to the current market situations better than a static rule based system? Just trying to clarify. I know an automated trading system requires less management and user input than other types of systems, but still requires some management and observation to take care of broker, data and other unforseen difficulties (errors in programming logic being a biggy) and to ensure it is executing according to the plan. A lot of that could be programmed into the system but I found that it is easier to manually override automated systems under certain unusual situations rather than to spend time programming every unusual situation (some of which may not be knowable before the fact) all into a system before implementation.

I dont think it is possible to state it any better than this. The perfect analogy.

What about an automated system like an EA? Do you think the emphasis is still on management being most important there?

I think the most important factor is using a method which suits your personality. If you are suited to range trading, then using a trend following or breakout system will result in disaster. For 2 reasons.
Firstly, you will struggle to stick to the rules.
Secondly, your mind will screen out data wchich is vital to your analysis.
If you are suited to trend following, then using a range trading method will cause similar problems.
Obviously, appropriate position sizing is absolutely crucial as well.
I believe you must have a market edge and method of exploiting it. You must know why your edge is effective.You must know how your edge functions in real time and you must know how your edge interacts with your personality.
Honestly ask yourself the question: Is this edge right for me?
Being dishonest with yourself can be a very expensive and heart-breaking exercise. Self-delusion seems to be very common problem. It certainly cost me for a long time.

Ken

To put it very simply, you can give two people the EXACT same method, and one person may profit very nicely, while the other will lose money, because discipline is the most important thing IMO, and discipline is an attribute of a man (or woman), not the method. Like it has been said before, technical/fundamentals are only 10% of the game, the other 90% is discipline, controling emotions, and being able to stick to your rules.

Ken,

Thanks for your post. From the viewpoint of the individual I think your points are right on target. This is a lesson that I had to learn as well - that even though a certain system makes money doesn't mean I can make it make money for me if it conflicts with my internal desires / wiring. Best bet is to not fight yourself but rather align your system with your internal desires. It sounds trite but it is true at least from my experience. Is it any wonder it is so hard to become a consistently profitable trader? Not only do you have to find a profitable system, but it also has to be one you can execute - one that is in harmony with your own internal wiring. And you have to learn the discipline to execute it consistently. And last but not least, you have to match your system and your discipline with a suitable market that provides opportunities for the type of trading you desire to do.

If the market is trendy, and your method is countertrend, you're just going to have heartbreak. The tricky thing is that all markets cycle from trendy to ranging from time to time, even though some markets are naturally more trendy and some are naturally more ranging. That has more to do with the market's fundamentals than anything. So even when you have a great system, and the discipline / internal wiring to execute you still need to be in harmony with the ebb and flow of the chosen market, which changes from time to time.

Great points, thanks for sharing!

Thanks for your post ScottH! Let me play devil's advocate for a minute. When you give two people the exact same method and one profits while the other loses is it possible that the difference between the two isn't discipline, but could be explained by execution skills, or the relative difficulty in executing a given method? From my own experience I've had a very hard time in the actual execution of any type of crossover systems, where buy/sell decisions are made as one line crosses over another line or price. For me this is a very hard system to trade because it is difficult to know in many instances if a convergence of the lines is a crossover or just a close joining of the lines. Anyway, I found I couldn't trade those kinds of systems because while they looked good in looking at past charts, in live trading I tended to make several whipsaw trades as a result of the data streaming in live and lines converging together and the general uncertainty of the moment.

Again, I would ask how do you take a fully automated system into account when quoting that 90% of trading comes down to psychology? It seems to me that the method is more important than 10% - in fact I would say that without that proven method the quoted 90% importance of psychology isn't worth much.

Good points. what I meant was a simple yet effective method was given to two people, with everything clearly explained and understood. i didn't so much mean execution, but more of where to exit, exiting early, not exiting, etc. psychology plays a huge roll in entering and exiting trades, even if they are CLEARLY marked where you should enter and exit. simply doing EXACTLY as a system dictates takes a lot of discipline. There are TONS of good profitable systems out there, yet so many people still fail at forex, why? I believe it is because trading as a whole conflicts with what is taught in society. people have beliefs instilled in them which in society is a good thing, but in trading it often causes a person to fail unless they can "reprogram" themselves with a proper trading mindset. People want to think trading is so complicated and spend nearly all their time developing a "system" with indicators or if this happens while another thing happens then buy, but it is (can be) very simple. you just need the proper mindset and discipline, which is very difficult to understand/learn, but definitely not impossible. It does take time and dedication, where like I said most people pay far too much attention to creating a system or method when, IMO, they should be teaching themselves proper discipline. Like I said, with all these free systems out there, people are still failing as a result of lack of discipline, control, and emotions. just my thoughts!

So this is where much of the intelligent discussion is lately here on FF.

There are so many threads to do with:

1) Here is my trading style and I will show you how trading is done right.

2) How can I make 10% a week?

3) Who knows a broker I trade the news with and not get screwed?

Instead of the what do I need to get my head right. It all starts with the axiom "Trade the plan - Plan the trade".

I am responsible for all my actions. Nobody else. The market does nothing for me or against me. Then you ask the question Why should I go long or short or stay out. Then what is no longer valid to make me stay in the trade that will cause me to exit. How much to fund trading account and how much to risk on each trade are other key factors.

But for most it is about 1), 2) and 3) and any number of other extraneous things.

Will they ever learn. I hope not.

Hello EZ,

I am not much of an auto trade guy. So it is out of my area of expertise. However, those trading programs require monitoring and adjustments too. I have seen guys change parameters too soon, not change them soon enough, turn them off before they give it a chance and hang on to them far too long. So, with that being said. I say yes, 1 pips statement holds true there too.

FXO

My vote goes to MAN.

Without discipline, a trader will most likely fail.

I view systems a fasciniating crutch which can be of value while one is learning to trade profitably. Many top traders simply trade "naked charts", without indicators or very few. From experienced they've learned to 'see' the market in a more natural way.

That being said, I also use robots for tradng. But I've got a long way to go on this path.

If you are using a method or system then Man isn't so important.
you can convert your technique to EA then your discipline is ready.

Good system is so critical aspect ub profit but you will never find any nice profitable system in the world better than mind.

In other hand you can't show right market direction because you haven't enough information about the market only old price!
out date information isn't so nice to deal with market.

funny I've been considering this for a few days. I have a few methods (note methods not systems) that I've been looking at which are at times successful, but the key is 'at times.' The most important part of my method is now the first two letters - ie me. Markets do not always perform the same way and so nor do systems so you need to know when to let your brain take over. As such when I am in the right mood, my decision making and therefore my trading are hugely better than when I am tired and frustrated.

What IS important is chart time. I think that the most useful thing that I have done in the last 6 months is stare for hours on end at charts, getting a feel for how they move and how they react.

If you do see a system on here that looks good, look back to 6 months or a year ago and see how it performed then.

Max

The method makes the man. We look at the young Arnold Schwarzenegger effortlessly lifting giant weights in the gym and think, boy I wish I could be like him, but he made himself like him. Where does the discipline and intensity come from? I wish I could tell you.

I thought this was as good a place as any to say thanks to FXEZ for the amount of freely available, high-quality material he left behind here and on his websites. How do I know he's a gem? He's been on the factory for 14 years and has only 106 subscribers.