Frequently, I face questions regarding automated trading systems, software and other such technological “money-makers” claimed in so many advertisements. Many self-proclaimed trading gurus talk about how they programmed their computer to make them millions. Any claim by a software developer that mentions profitable and automatic trading should immediately put a savvy trader on the back foot. Come to think of it, if the software really worked, the guy would have used it to become the richest person on the planet. And given the volume of financial instruments that trade in a day, the developer could do it in a couple of days.

We do not trade the markets; we trade people. There is no way for a computer to keep track of every market participant and what their next decision will be. I think we have become so dependent on technology that we have constantly been led to believe in the power of computers. Not to discredit computers in any way, but there is a need to understand the fact that humans are still the most important part of any decision making process. According to Bo Yoder, “Humans act and react to psychological trigger points, while computer-based trading models react to statistical anomalies, mathematically derived over-bought or oversold indicators and momentum-based measures.” This simple fact, however, seems to have been disregarded by the people who came up with the idea of having a trading system make all the decisions for their traders.

If trading systems won’t do the trick, then what will? The key is having a “trading structure”, and fine tuning that structure based on your personal trading style. A trading structure includes a set of guidelines (not rules) that assists you in your decision making process.

Trading is not a science, it is an art. For example, you can sit for hours reading a book about how to play the piano. But unless you get physically involved, you will just acquire a lot of head knowledge. First, you’ll need to learn key placement and how to read music. Next, you’ll need to practice and develop the skill. Trading follows the same principle. You’ll need to learn all the technical stuff, then fine tune your trading skills.

Every trader is different. There is no one size fits all approach here. Risk tolerance, available time to trade, and financial goals all play a part in your trading structure. I belong to a group that trades for income and invests time, money, and energy in our success. If you’re serious about trading, I urge you to do the same.

Filed under: Trading by Chris Dunn