Learn How To Execute a Trading System Flawlessly

The proper execution of your trades is one of the most fundamental components of becoming a successful trader and probably the most difficult to learn. It is certainly much easier to identify something in the market that represents an opportunity than it is to act upon it. However, there are some good reasons why it is so difficult to act on a trading signal other than what has already been identified as mental obstacles. To understand these reasons, you need to understand the nature of trading systems (defined as any methodology that consistently identifies an opportunity to buy or sell with a potential profit in some future moment), and how they interact with the markets and ourselves.

Most good trading systems, technical or otherwise, will take consistent money out of the markets over the long run. Many of these good systems have been available to the public for years. And yet, there is still a huge gap between what is possible and what almost everyone ends up with. The problem with trading systems is they define market behavior in limited ways when the market can behave in an infinite combination of ways. Systems mathematically or mechanically reduce relationships in human behavior characteristics to percentage odds of what could happen next. They can only capture a very limited number of these behavior characteristics compared to the billions that are possible. Any identified pattern may or may not be repeating itself with respect to the way the pattern or relationship progressed when it was observed in the past. Therefore, we never really know if it is valid or not until it has actually completed itself. The big psychological problem here is that people have difficulty acting on opportunities with probable outcomes.

Most people like to think of themselves as risk takers, but what they really want is a guaranteed outcome with some momentary suspense to make them feel as if the outcome had been in doubt. The momentary suspense adds the thrill factor necessary to keep our lives from getting too boring. When it comes right down to it, no one trades to lose, no one puts on a trade believing it is going to be a loser, and all systems will definitely have some percentage of losing trades. So it’s difficult not to be tempted into trying to guess which ones are going to be the losers and not participate.

As most of you already know, trying to outguess your trading system is an exercise in extreme frustration. Sometimes the system will give you signals to trade in ways that are completely contrary to your logic and reasoning. Sometimes the system will defy your reasoning and be right, and sometimes you will agree with the system and it will be wrong. You need to understand that technical trading systems are not designed to be outguessed. What I mean is, they 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 of the future.