Keep Calm and Carry on Trading!


While trading stress cannot be eliminated completely, I have found that by adopting a systematic approach one can greatly reduce the amplitude of the emotional swings encountered.

Discretionary trading can involve not having a trading plan at all (we’ll leave that one for another day) or believing that one has a trading plan when this isn’t in fact the case. Don’t get me wrong, I do know a handful of discretionary traders who are disciplined enough to make very good returns over the long haul but my take is that most discretionary traders tend to struggle as they lack the same discipline as their systematic counterparts.

The reason my trading career went down the systematic route was because I discovered long ago that I wasn’t very good at discretionary trading. I found that when I was doing well I got overconfident and increased my unit sizes and took trades which weren’t necessarily good risk/reward opportunities and when the proverbial inevitably hit, my gains were quickly erased. When one starts in any industry it pays to have a mentor who can ‘show you the way’ but in the trading arena it can often be beneficial to have a ‘bad’ mentor whose shortcomings one can learn from.

In my first professional trading role I had the misfortune (or fortune as it turned out) of having just such a mentor in the head of a proprietary trading operation. The firm had their own ‘systems’ which turned out to be ‘half-baked’ and were used only on a discretionary basis and with varying unit sizes which depended on how the head trader felt at any given moment. As with my earlier failed attempts at trading there were occasional winning streaks which led to over-confidence, higher/varying unit sizes and ultimately to capital loss but of all of the lessons I learned from the whole experience one thing stood out.

At the start of this trading adventure one of the things the trading team were required to do was to ‘underwrite’ each trade, i.e. to provide supporting evidence that the trade conformed to ‘system rules’, a very noble idea in my opinion. As time went on this due diligence was routinely bypassed until eventually all discipline was lost and the head trader was actually making trades in opposition to the ‘systems’, as bizarre as that may sound!

My point here is that if one commits to only taking trades in accordance with a system one can easily get over a ‘bad day in the office’. Every system will come with a performance summary which comprises of such statistics as ‘maximum drawdown’, ‘maximum % losing trade’, ‘maximum consecutive losing trades’ and so on so that the downside is known in advance and there are rarely any big surprises. Keep Calm and Carry on Trading!