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One little addition to Tom Stein's very good post:
Your "system" must have a definable, demonstratable "edge" which
results in a positive expectation in terms of profitability, AFTER
transaction and slippage costs.
If you don't know what your "edge" is, and how good its
expectation under given conditions, you simply do not have one.
Without an "edge" you will not make money.
There is no magic here. Edges are not at all hard to find. But, when
you subject them to the positive expectation test as outlined above,
many, many, many will fail. Indeed, the "price" to involve oneself in
a trade is significant.
Another BIG and widely-found mistake are all those who "believe" in
their supposed "edge" without proving its expectation, rigorously,
and without "changing the rules" each time their "edge" is used.
This behavior actually helps one be a losing trader. The human mind
is easily faked out looking at indicators, and interpreting tools
differently each time they are used. It's great for the ego, cause
you and your indicator/tool are always "right". Even worse are tools
and indicators that have so many possible intrepretations or outcomes
that they are always "right."
If your account equity is not growing, you need to look elsewhere for
your "edge", period. Do not be afraid to abandon what is not working,
and dump it extra quick if it always is "right", but your equity is
smaller, not bigger.
One final thought: markets have a way of assigning a monetary value
to almost everything. They do it to "edge" too. Remember above I said
there are many ways to get an "edge"? I'm sure you will agree that
the floor traders have an "edge" that passes positive expectations
testing. What did their membership cost? Why is it that high instead
of being available by dialling an 800 number and putting it on a
credit card for $99 like so many worthless indicators, newsletters,
systems, or even for $399 or $2999 like so many other worthless
unproveables?
Because it is their "edge" and it is a real one....
Yours will be valuable too, once you find it (you may well even find
several -- the first one is the hardest...). It takes work, and is
not easy (or their would be no rewards...) You must do it YOURSELF.
If you do not, you will lose your money to other traders.
Period.
Cliff
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