The Trading System That Looks Perfect.
We all want to have an edge over the market. We want to have the best system in the entire tradersphere. You’re tired of being a market sheep and you just can’t take it anymore.
“It sucks to be a sucker! From now on, I’ll advocate mastery of my craft!”
You told yourself (epic soundtrack playing)
Now you set your goal to create and master a trading system, be an independent trader, and turn your trading port into an ATM machine. Kaching!
But in our pursuit of finding and creating our own system, I want to caution everyone with this devil of system creation. The well-chosen examples.
Let me give you an example for illustration. I would like you to meet Mao the Cat;
Mao has been trading the Philippines Stock Market for 5 years. Mao introduces his newfound cool trading system to his fellow traders’ cat.
Mao: Hi there! Look at my new trading technique called Mao-Psionic Crossover (whatever that means). It’s awesome, you can earn the highest return in the shortest period of time.
Then Mao pulled a chart sample to show and explain how his system works.
Mao: The system is simple. When market price cross above the Mao-Psionic Line, you buy. When it crosses below, you sell. It’s that easy right?
And everyone listening thinks it’s awesome.
Of course, it is awesome, Mao can pull another 100 or more historical chart specimens just to prove the effectiveness of a particular method. Those historical chart specimens are called well-chosen examples.
Jack Schwager explaining the well-chosen example.
“Basically, any system ever invented can be made to look great and awesome if one simply illustrates the system by selecting the historical market that proved most favorable for the particular method.”
The well-chosen examples have a problem though, it’s all based on hindsight. It does not necessarily prepare traders to react to future scenarios. Also, it creates a market blind spot. Because as we all know the market isn’t always smooth and predictable as those well-chosen examples.