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For decades we’ve been told that these are the foundational principles of successful trading.
I am here to say that these are all lies.
Now I come from a family that survived rape by the Cossacks, Hitler’s killing fields in Stalingrad, Stalin’s killing fields in Siberia and endless rounds of interrogation by KGB.
My mother, at the age of 80, when told by doctors to lose weight in order to help her malfunctioning heart valve, lost 30 pounds in 6 months by literally eating a single prune every day until dinner without so much as a single peep of complaint. So you could say that I am quite familiar with the power of willpower. And yet I am here to tell you that its bulls-t.
Don’t get me wrong. Willpower is important. The more you have, the better are your chances of success, but the latest evidence from scientific studies shows that willpower is a finite resource and if we squander it on too many decisions we will inevitably fail to control ourselves.
Think about it. How many times have you told yourself you will honor your stop, honor your setup, honor your size -- and actually did so for a week, a month or perhaps even a year -- only to succumb to one false temptation of a trade an unwound all of your gains in a matter of hours?
It’s not your fault. We are simply made that way. Every single person has a breaking point. Everyone. To paraphrase a billboard I once saw -- its a matter of chemistry, not character. The more scientists study human behavior, the more they realize that we all have only a finite amount of mental and physical strength to resist the stressors in our life. Some have more, some less -- but the bottom line is that the romantic notion of a cowboy trader, completely self-contained, self-controlled and immune to any and all pain -- be it physical or psychological is complete nonsense. Willpower requires immense mental focus and we can only sustain that focus for so long.
Have you ever traded 30, 40, 50 times in a day? You are inevitably mentally exhausted and almost always at breakeven or barely profitable by end of the day.
Because you’ve made too many decisions which almost certainly made you lose focus and make errors. No matter how much willpower you applied, I bet you made more money on days when you just made 1 or 2 well-chosen trades.
I’ve been thinking a lot about willpower over the holidays after I handed off all of my trading execution to my EA robots. Here are just of the things I did not have to do. I didn’t have to check the size or the entry side of my trade. I didn’t have to manage risk or take profit. I didn’t have to select the pairs. I didn’t have to time my entries or check quotes every two hours of my sleep. I outsourced a massive amount of clerical decision making to my computer, which never tired, never made a mistake and actually managed to trade through the flash crash with panache while I was having a blissful dinner with my eldest child only vaguely aware that USDJPY dropped 500 pips in 50 minutes for essentially no reason. If I was at the screen at the time, I can almost assure you I would have done much worse than my algo, as the emotion of the moment would no doubt overwhelm my willpower.
Now please don’t get me wrong. I am not arguing that algos are some magic success formulas that print money on demand. Algos can and do lose money all the time. There is no such thing as a set it and forget it strategy. But it is a truly massive difference in both focus and performance when all you need to do is manage the algo rather than the dirty work of managing the trade. By using our willpower on only the most important functions of trading we conserve our focus and apply the discipline where it matters most.
With my algos humming away in the background, today’s NFP was one of the least stressful sessions of the year for me. I was able to see the field of play with much greater clarity, much to the delight of the BK chat room members who banked very decent pips off my calls.
So while I can’t promise you that algo trading will make you profitable, I can guarantee you that it will make you a better trader. Which is why I am hoping you can come to our FREE MT4 Traderfest next weekend and learn about the advantages of rules-based trading. It’s time for the machines to help us conserve our willpower for times when we need it most.