No. of Recommendations: 7
Hi Chris,

I've got to side with Russ & TR on this (not that anyone gives a damn about sides, LOL!)

Mental/Manual stops can *ONLY* work in one's imagination when theorizing about how a blown stop (gap, whatever) can theoretically be manually overcome by a trader executing their exit via discretion...

In reality Mental/Manual stops are merely (FIERCELY) held onto in fear by the trader's Ego. It's a fear that they have no effective system, and thus must rely on the Ego to make the "on the fly" decisions.

The problem with mental/manual stops is that they are vulnerable to whatever emotional state the trader happens to be in when the MARKET brings the call to action... instead of the Trader establishing the control at the trader's focused convenience.

Because we know it is impossible to CONSISTENTLY be a mechanical human (oxymoron,) we create systems to squeeze out the erratic humanness that inevitably creeps into our discretion "on the fly."

I say "squeeze out" because, as long as it is humans writing the systems themselves, it will be impossible to ELIMINATE the human emotional bias... HOWEVER, within a system;
A) The bias can be measured,
B) the bias shows in consistent, non-varying results,
C) the bias can be adjusted,
D) the bias is independent of external (to the system) influences.

Failing to execute a systemically predetermined stop due to non-systemic discretion rapidly deteriorates a trader's self-image of discipline. A single unintended loss CAUSED BY a non-executed stop can be more destructive than several "manual saves" (which can also create artificial confidence,) and when compounded by the denial of the loss (further supported by the shattered discipline) can end up wiping a trader out entirely.

The time to use discretion is in the designing of the systems, and the planning of the trades, seperate from the live action of the markets. If a system's stops are being gapped past and creating more losses than they are protection (and in grabbing profits,) then the SYSTEM can always be re-structured to account for the market behaviour consistency.

After all... if the market behaviour is being consistent enough to execute measurably against you, adjustments can be made (while decreasing or adjusting position risks,) so that the SYSTEM counters the market's consistency to your favor.

THEN it's merely all about automating the execution of the measured and tailored system.

Unless you are in the physical pits where you can see the flaring nostrils and hear the screeching stress of a squeezed opponent (which, of course, is going the way of the dinosaur,) there is little to no productive advantage to "trading by feel" anymore (IMO.)

EVERYTHING is reflected in the Price and Time. OHLCV, baby! (And even "volume" is questionnable! ;~)

IMO, the ONLY reason to trade in a non-automated, non-mechanical, non-programmed basis is;
A) One can't yet afford the technology,
B) One hasn't learned to design trading systems,
C) One doesn't have access to sufficiently automated execution in their chosen markets.

All 3 are legit reasons... but #B is likely the most prevalent... again, IMO.

Dave
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.