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Second Guessing Commodity Trading Systems

Stock-Markets / Credit Crisis 2009 Oct 26, 2009 - 04:28 AM GMT

By: Andrew_Abraham

Stock-Markets

Mechanical trading systems used in commodity trading if followed with discipline and patience can assist one in their quest for long term success. Many of these systems are based on trend following. One of the most positive aspects of mechanical commodity trading systems is that it helps commodity traders control their emotions ( or at least it should)


Mechanical trading systems accomplishes this by automatically placing your buy and sell orders based on the parameters determined by the system. BUT….

Too many traders start second guessing their system at the first sign of a draw down or if they have an opinion opposite their analysis.
Has this been you?  Let’s say that based on your analysis, you feel gold is going to rise. Your system, however, will not generate a buy signal for gold.

Just as you thought, gold rises. You feel that you were right and start to get frustrated, and possibly even angry. You were right, the system was wrong.

What you forgot, were all those previous times when your system was right and you were wrong. Second guessing your trading system can only lead to aggravation. You are using a mechanical trading system based on the fact you tested out ( or should have ) an idea. Your back tests proved the concept…so why look to start deviating? This is one of the quickest ways to lose confidence and money.
The real fact is very simple..sometimes your system will be right and you will be wrong. Sometimes you will be right and the system will be wrong, and other times you and your system will be right. The fact to realize is that any trade means absolutely nothing. Your money will be made over a series of many trades.

If you really want to succeed long term in commodity trading is that you do not try to outguess your mechanical commodity trading system.

In your quest for success it would be worth your time reading Mark Douglas. He is an authority on the psychology of trading. In one of his books he states “Systems aren’t designed to give you isolated signals of an opportunity to be taken when it seems right. What they do is mathematically define, quantify, and categorize past relationships in collective human behavior to give you a statistically probable outcome for the future.

As I have stated over and over…one of the keys to long term success in commodity trading is Patience and Discipline. Outguessing your commodity trading system is the opposite of discipline.

If you have commodity related questions please, feel free to contact me. I will be happy to answer your questions to the best of my ability.

Andrew Abraham
www.myinvestorsplace.com

Andrew Abraham has been in the financial arena since 1990. He is a commodity trading ddvisor and co manager of a Commodity Pool. Since 1993 Andrew has been a proponent of quantitative mechanical trading programs. Andrew's major concern is not only total return on investment but rather the amount of risk that one would have to tolerate in order to achieve returns He focuses on developing quant models that encompass strict risk adherence and correlation. He has been a speaker at conferences as well as an author of numerous articles. Andrew has spent years researching ideas that have the potential to outperform indices as well as maintain fewer draw downs.

Visit Angus Jackson Partners (http://www.angusjacksonpartners.com) Contact: A.Abraham@AngusJackson.com (mailto:A.Abraham@AngusJackson.com)

© 2009 Copyright Andrew Abraham - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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