Self-Trading

Understanding and using basic principles provides an anchor of sanity when trading in a crazy world.

In the broad category of "trading the markets," there are basically three types of trading: discretionary, technical, and system-based.

lt's important that you understand the difference between them, which is not always clear.

I've met many people who believe they are system traders when they are actually technical traders, and vice versa.

I have known and taught many traders, and have observed that there are four distinct stages of trader education: discretionary trader, technical trader, system trader, and complete system trader.

All successful traders bave gone through them. It is almost impossible to be a successful system trader without going through all ofthese stages.

Every trader usually starts out as a discretionary trader. The amount of money lost generally determines how long it takes the individual to start using technical indicators to make trading decisions.

Eventually, as even empioying technical indicators fails to move the trader into profitability, the trader moves into the third stage and starts to write systems based on quantifiable data.

It is at this stage that the trader ordinarily starts to make money. Finally, the systems and money management strategies are refined and the individual becomes successful as a system trader.

Anyone serious about finding a profitable system should use the latest technology and the best software available.

This means learning how to use a Computer.

When I started trading, all historical testing had to be done by hand.

This was labor intensive and very time consuming. It was necessary to peruse charts visually and record the simulated entries and exits by hand.


As the futures and securities industry continues to grow, more and more traders will enter this business.

The competition for profits will continue to increase. For example, in the early '80s it was very easy to make a lot of money day-trading the S&P.

I used a simple dual moving average crossover system on 5-minute bar charts.

There were proportionately very few intra-day traders with computers that were competing for profits.

But since then, with the increase in the number of traders using intra-day charts, these very rudimentary indicators have stopped working.

When everyone started using them, the profits dried up. It is much more difficult in today's markets to make the money that was there in the early years.

The standard indicators just aren't that effective anymore.

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