Past performance is no indicator of future returns... Too great expectations

Yeah I get it. I’m just trying to find ways to reduce losses in elevated market risk times. But it seems no one is doing this because all I’m getting is blindly “follow the system” comments. What reply posters aren’t getting is that I am following the system in that I am taking losses, all I am trying to do is reduce the losses by avoiding specif higher risk trades in higher risk times by using the tools available to flatten early the portfolio equity curve.
I’m sorry I even started this thread in here now.

John, I have been a day trader for 15 years. I trade my own systems. But I uses SWS to safely look after my profits. As a day trader, I learned the hard way, just as you are doing, that having put years into developing my systems, I must be crazy to not have absolute faith in them. No matter how unlikely a trade might look, YOU DO NOT AND WILL NEVER KNOW WHAT WILL HAPPEN NEXT. The system is 10 times smarter than me, because it is absolutely unemotional.- If you can’t trade a system with absolute discipline, you have absolutely no chance to make and keep profits as a discretionary trader. Yes I know, with limited capital, you must pick and choose trades, but that is part and parcel of the SWS SPA sytem. It doesn’t say you have to use SPA3 to choose which of the recommended trades you take. I use Metastock Pro to analyse the stocks that SPA chooses for me, as wsell as Beyond Charts, but you have to make a choice and let it playout. It is a very hard thing to learn to do, to follow a system faithfully through drawdowns, but this is what you must do. Take the profits, take the losses, losses are just a cost of doing business. And there is no room for emotions. You must be robotic. Yes, it is hard to do when you didn’t write and test the system. But everyone has to manage that problem. But having tested more than 10,000 ideas in my trading life, I know that SPA3 is the system I would have written if I had wanted to concentrate on portfiolio selection and management. I empathise completely with what you have written, and your obvious frustration. And I get it that the members of the Forum do get what you are saying, but you have to get it, successful trading takes more discipline than anything else I know, and a mind loke a steel trapdoor, and total love for your proven edge. All the best for your future life John…

Thanks Michael,
I don’t have trouble with the system, I never did. I like this system. I have said that a few times now. I also accept the loss factor in the longer term scheme of things, have done since first reading up on the system.

I drew attention to the 4 week accumulative Hi - Lo chart as a very good bellwether chart for market states, and this was the conclusive focus of the search for a way to time a way to scale back trading when markets and sectors turn higher risk.

At this point I have learnt the hard way to not take trades as the market and sectors go into high risk states and just prices start dropping daily and losses on profitable trades accelerate and new trades instantly turn bad.

I’m disappointed the discussion focused on the “absolutes” and no one picked on up or commented on this finding.

Others may be inclined to cherry-pick lines from this and post them back at me, I don’t care, from this post forward I’ll be going completely private with all my trading activities win or lose no discussions or help sought. Clearly I’m not the brightest trader out there, I used to rely on my father’s feedback for ideas a lot, but having lost him recently I feel a bit lost with it all.

BTW since following the 4 week hi-lo chart to scale up and down trading my equity curve has benefited greatly, I simply stop taking so many entries.
So goodbye and good luck.

Hi John, as I said earlier, I know exactly what you are trying to deal with. The details of this chart, or that strategy, they just get in the road and are a distraction in this matter. What you are really talking about is trading psychology. What you are trying to do, it is the hardest hurdle of all to jump over. But at its very root, it is just loss aversion by any other name. It is so subliminal, so insidious, and shows up in such subtle ways. It is an automatic impulse, that erodes your faith, even for me who has created and trade my own systems, who knows just how good it is, knows its faults too, and know what Gary insightfully pointed out in his earlier reply to you,” no system is in sync with the markets 100% of the time”, I know it is true and that you just have to grin and bear it. It is so easy to want to do something, anything, at those times, but you have to see it clearly for what it really is and live with it. I have always been quite amazed that the more I try to perfect my system entry points, the worse my results get. It seems impossible to design a system which maximises the profit in every swing. It always gets out of sync. Once I hated to enter a trade more than one bar after it had turned. But all turning points look the same. Only the extent and duration differ. Now I enter happily 20 points or more after the pivot point without a worry, when I am sure it really has turned (I always trade “Stop and Reverse” all day, maybe 40 times a day). I just had to accept that imperfection is a part of the game. The change came when I truly accepted that there was no way I could ever know what was going to happen next. Mark Douglas told me that, but it took years to truly digest and accept it, and naturally live it out every moment. That is what made the difference in my life. And not just in my trading life, but in every aspect of my life. And I see a sign on the bookcase behind Gary in his video presentations that reads “Anything can happen” so you know how important those words are. Jessie Livermore is quoted often “It was the sittin’ and Waitin’ that made my money”. One of these days you will accept those words, not just read them as if it is nothing but a cliche, but truly internalise it. Then you will not worry about this or that detail any more. You will reach a stage where you don’t react to other traders criticisms, they won’t even register with you, you will just read them without caring if they are right or wrong, you’ll just take what is useful and ignore the rest. I hope that day comes your way soon John. I have total peace of mind when I trade. I have no fear or emotion when trading. Just do what needs to be done, when it needs to be done. But in my early days I was like you, and it took a long time, years, to get to be the way I am now. Years! So don’t be discouraged, it will come right for you eventually. I think Mark Douglas had the biggest impact on my trading life. And my association with SWS has played a special part in my trading. Also the Turtle traders proved to me that I could do it. And years down the track I came across Dick Diamond via Bob Prechter at Elliott Wave Int., read his book “Trading as a Business”, and saw that for 50 years he made his living trading exactly the same way as had developed for myself, which told me I was on the right track. I only wish I had got hold of that book 15 years earlier. And I only wish I had got interested in trading at a much earlier stage of my life. I am 74 now, and still trade all day every day, 7.30am to 10pm. You are years ahead of me in life expectancy, and you are on the right track with SWS, believe me. Enjoy your trading, it is a wonderfully rewarding journey John.

Hi Michael I was interested to read your interest in trading as a bussiness by Dick Diamond, I would like to have a chat sometime if you dont mind about… I spent a week in US in a group learning his method my name is Hedley Monkhouse residing in Townsville QLD

Hi Hedley, thanks for your message. I live in Heidelberg, in the southern half of Germany, and at the moment it is 9.08pm here, and it’s 6.08am in Sydney, so we are 9 hours behind you. I think Dick Diamond was a great mentor to traders young and old, and that he cared enough to take the time to teach and to run live trades as he taught, that makes him a champion in my book. But if I had not been a long time subscriber to Elliott Wave International, I may not have ever come across the late great Dick Diamond. Aparently Bob Prechter had to really twist his arm to get him to write a book, but I am happy he did. Its a rare thing to find a trader that will share his secrets for the price of a book. He was well named. I would be intetrested to hear how the course went for you.

Michael Cullen - fantastic comments - evidence of an investor / trader that has truly ‘arrived’ mentally IMO. And still has the awareness to realise that it’s a continual work in progress. Compulsory reading for members I reckon!

Michael my email address is (admin removed) and it would be good to hear from you.
Kind regards, Hedley.

Michael Cullen, I have learnt more from your kind few posts then I have since using the Trader system. I will definitely look-up those people and books. And will copy your words out and make a plaque from them. Good wealth to Sir.

Just in appreciation of the advice given above, and to provide some clarity on what has been implied by the more experienced SPA3 Trader users, but maybe not said directly, are the following points I have picked up on:

  1. You don’t need other indicators or signals when using this system. In fact, you don’t need anything beyond the scan data sheet.

  2. There are System approved indicators on charts that can be checked like;
    ATRVE (ema 15, limit line: 3.5 5.0) and is listed on the data sheet for New Entries for sorting purposes.
    Liquidity (limit line: 100,000, period 63)
    RSC Relative Strength (Comparison: Auto, ema 21, ema 30)
    Strategy #2: ATR-TS (EMA 21,3.68,2)
    Swing Chart period,3

3a. Trading: Be the Robot; take the first trades in the list sorted by ATRVE until capital expired. No need to use or check indicators outside approved. Have blind faith that the back tested system designed edge will work in your favour over a large sample (5 year) of trades, take system Exits and Lightens without hesitation.

3b. If, when you place an order at the Signal price the day after the signal is issued, that order is not taken up then don’t move it up the price range too far unless you feel comfortable in doing so (?), until the system Action price has been issued (?) when you have at least the system action price to base the trade on.
Be the Robot; if after a few days (personal period; system not defined) the order expires move onto the next days scans and take new orders, don’t chase price as Volatility Stops and Profit Stops will trigger just as your order gets taken out invariably leaving you with a loss trade from the start (personal experience).

There are no system defined physical trading rules as far as I know, so there is reasonable flexibility in interpretation in getting your order set and taken up. Experience by long term users have determined that chasing price only leads to high Action prices in your portfolio, the lower the better.
(This is the area where I have the greatest difficulty with the Trader system, as invariably price is hiked up even before Market opening on many of the New Entry stocks, but ‘being the Robot’ you could just place an order and forget until the order is taken out or expires releasing capital to then move onto next scan Signal trades; this should present lower risk).

Conclusion; Trading this way ‘should’ reasonably produce the baseline Public Portfolio equity curve, or within the defined bands of back-testing have produced (see manual). You won’t see the results of this for a good period of time, so you need to have ‘blind faith’ that your equity curve lies within the upper equity band zones where you would prefer it to be, nobody trades to have marginal or low returns. What defines an upper band portfolio to a lower band one? the random distribution of probabilities of choice from user interactions undefined by the system. (Maybe you could say this is where my efforts are focused on in raising my portfolio equity curve to the upper percentile band, and beyond?).
If you feel your returns are not adequate seek help.

Goodbye and good luck, but luck is not part of the defined system so Good trading!

Hi John, good to reasd your words. As you can never know what will happen next, and knowing that all price movement comes from the order flow at the exchange, which is absolutely random, and truly realising that anything can happen, and that the system truly has a well proven edge (all the thinking and testing has already been done for you, Gary couldn’t still be in business if he was wrong), then you can never know when you place an order if it will be a winner or a loser, and you can experience the freedom of following the system uphill and down dale without any fear. It is fear that ruins you, warps your decision process, that makes your trading problems. Remember, this a game with only one player, you versus you. Don’t make problems for yourself, it is unnecessary, make trading a nice experience, all day, every day. This is how it is for me. I know what I know from years of doing the wrong things. Don’t be dumb like me, get it right now.

Hi Michael, I don’t experience fear as much anymore now as much as frustration (equally damaging to fear), I have found using this system simply as above is like “ignorance is bliss” as long as you don’t track the stocks you didn’t get set in or take up, you won’t get angry and frustrated, when you see that stock fly upwards. You have to let it go and move onto the next batch, or take out your frustration and anger out on something else like a dart board with a picture on it, or a punching bag, go second hand car shopping and kick some tyres! You know what I mean.
I call Trader the Ignorance is Bliss system, its bliss as if you don’t fight it.

Hi John, keep doing what you’re doing, or do it anyway you think. When you finally give up thinking and emotional reaction (anger, frustration), fighting or not fighting, when you behave intelligentlyx and act with absolute confidence because there is no indecision, when taking a trade or not means no more than drinking a glass of water, then you’ll do well. And if you choose not to, you’ll join the millions of traders who went broke and found something more suitable to do. It is not about ignorance or bliss It is your mind that causes your problems. It is you, not systems, not the market price action, not what the stock you didn’t buy did, it is you and your silly mind, your thoughts (all minds are silly, just shut your eyes and observe your thoughts for 10 minutes and you will agree). When you get control of your mind, when it becomes still and quiet, then it will all come together, and we will probably never hear from you again.That is the best advice I can give. It won’t happen tomorrow, may nver happen for you, but after 26 years of daily meditation and 15 years of day tradiing, it’s is what I am certain about. All the best for your future, whatever that may ultimately be.

Some thoughts on position sizing and portfolio equity curves. With the understanding that the system stops at the Signal Price, where the trader takes over with placing position size orders at the coal face of the market, and appears to be beyond this forum to discuss anything beyond the Signal Price point apart from the trading psychology aspect.

Position sizing is a ‘free for all’ for all high position size and low position size investors. Without a gearing of stock scan selections filtering out for higher position size investors into higher liquidity/priced stocks.

Based on the investment amount, for example 15K+ position size (similar to Public Portfolio real money) on a low liquidity stocks, will move those stock out of reach of low position size investors who will follow the system Signal Price levels. Thus improving the high position size holder’s equity curve as they take the trade into higher price levels and sell at later higher stops and exits.

Low position size investors (1K to 3K per stock) may not get positions set due to large positions buying ‘at market’ the first, second and third plus sell side orders of low liquidity stocks, leaving signal price level investors languishing in the buy side, if these low position size holders disregard system Signal Price and chase price, or anticipate the following days Action Price, they may get set but at much higher price levels than system Signal levels. Or low position size investors might be inclined to also buy at ‘market’, after the market is open, resulting in getting set (or partially set) at higher price levels yet again.
Alternatively they may not get set in the stock at all missing out on another gainful stock, thus their equity curve will reflect these lower gains.