The Secrets of the Investment 'System'

Last week proved to be an enigma for many professional traders. Many of us believed that a rally of that magnitude, in that period of time, with little positive economic or fundamental data, made about as much sense as running into a brick wall head first and not expecting to injure yourself.

The movements of the financial market last week tested most of our instincts and experience as professionals; I know that’s how I felt.

And after I talked with a good many friends over the weekend, I have to address what I see as the core problem that most investors face.

Psychological Control

You may think the average investor fails because he doesn’t have the inside knowledge or experience that professionals do. But that’s not true. In fact, most average investors have all the tools — more than most of us professional traders.

The fundamental difference between the average investor and the professional trader is how you think about an investment.

For many investors, fear and greed cause frustration and panic. Once these emotions take control, investment plans tend to break down, and investors become a detriment to their own investment portfolios.

Having an “insider” like one of us at Taipan to guide you can certainly help, but you also need to learn who YOU are as an investor and where your sensitivities lie…

Are You Aware of Yourself?

My good friend Mark Douglas, who is highly regarded on Wall Street and was kind enough to write the forward to my book, Your Options Handbook, has written two exceptional works on the mental aspects of trading. This past week, I thought a lot about his most recent work, Trading in the Zone.

The book is extremely detailed and takes you through a series of scenarios that focus on our belief systems. The goal is to be aware of your thought processes and conquer your hidden mental roadblocks to success. (He also explores the many paradoxes in the marketplace — and there are plenty of them!)

Through our friendship, experiences and projects together, I believe we both share this fundamental core belief about investing:

Even though the market can be extremely random in its outcomes, having an edge (which comes from a system, tool or method) combined with a sound and consistent mental approach will ultimately lead to success if executed with continuity and repetition over time.

Basically, if you follow a set of rules or an investment system that has made other people successful, you too should be able to succeed if you “don’t let your brain get in the way.” Be aware and have control over your belief systems. Keep following the rules of your system over and over again.

In his book, Mark makes several compelling statements. Here are two to think about:

• “Learning how to identify an opportunity to buy or sell does NOT mean that you have learned to think like a trader.”

Many investors develop a system to find opportunities and see some success through testing. But once they put it to use in the real market, they fail. Why? Because the system is only half of what makes you a good trader. Perhaps they jumped out of the trade in fear, because the pain of potentially losing all that money scared them.

The solution here is to look back on the trades you made and record your emotions. Why did you exit the trade? Was it your system? Tools (charts)? Did your reasoning change? Or were you “spooked” out of the trade?

Last week, many short sellers (investors going against the market) were spooked in this same way. Maybe they could have benefited from another of Mark’s ideas:

• “If you want to create consistency, you have to start from the premise that no matter what the outcome, you are completely responsible.”

Whatever your plan or system is, you must follow it without fail and realize that deviations from your plan or system creates another layer of randomness in your success. Let me explain what that means. The more you make decisions outside of your plan, method or system, the less you know why a trade was a success or a failure.

First You Need a System

Each of our trading services follows a system, incorporates a method and has a plan that we execute as consistently as possible. If a stock or option meets our criteria, we act. When that stock or option no longer fits our criteria, hits our stop-loss, or if we attain our profit target, we exit.

Just like the greatest teams in sports, there will sometimes be strings of many winning trades and even losing trades, but you cannot let the emotions of trading take you away from your method or belief system.

My colleagues and I strive for consistency. We will teach you that when the market throws a curveball, you must act as though you are the best hitter in baseball and simply execute what you have been trained to do: connect!

Success in the markets is a long-term goal. Don’t panic or make dramatic adjustments in your strategy if you are hitting a dry patch. Adjust one variable at a time and measure your results.

To help develop your system, I encourage you to learn more about what we do at Taipan. Here is a link to our different services.

Editor’s Note: Jared’s WaveStrength Options Weekly service has a system that consistently banks 15%, 20%, even 50% gains for his readers.

It is not a shady get-rich-quick program either. Jared’s faithful subscribers are getting rich with safe, reliable profits. To get his latest advice, click here.

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