Why is it that anywhere from 80% to 90% of those who have traded in the Futures Markets have been net losers? Or, more importantly, what do those 10% to 20% know or have that make them winners in the “Olympics” of investments? These latter competitors are truly gold medal winners. Be sure that the competition is every much as demanding as these international games where hundredths of a second mean the difference between recognition and also ran.

  Each of the Olympic competitors has a training program, a plan, that they rigorously follow for years in order to reach their goal. I am sure that you will agree that without that training program, that plan, there is absolutely no way that one can hope to be a contender much less a winner. Even when a person does make a total commitment to a goal, success is not insured. Like the Olympic games, the futures market produces only a handful of winners.
 
What would I like to present to you is a model for the “Futures Market” training program, without which you can never hope to be a contender. With this total trading system you have an opportunity for success. If strictly followed your plan may even produce that elusive “Gold”.

  The model I would like to suggest consists of five elements: Preparation, Signal Generator, Action, Result and Evaluation. Please not on the accompanying diagram that I have represented the essential five elements as nodes on a wheel, with the hub being discipline. The spokes of the wheel are also discipline, as well as the wheel rim itself, You see, discipline holds the structure together, much like the discipline that is required to move an adequate athlete through the years of training in order to produce a champion. I contend that there is absolutely no difference in the extra ordinary discipline required to become an Olympic contender as that needed o become a successful trader!

  The first step in describing the model is PREPERATION. This may consist of reading newspapers, magazines, books, advisory services and/ or reports, maintaining charts, keeping records, etc., The essential element here is that all preparation work be consistent. You must regularly schedule a specific time of the day or week to set aside for this activity. Also, you must do your preparation so that it is in consonance with the requirement of your signal generator. In other words, don’t do more research than you have to you will simply ”cloud” your main objectives.

  Most people refer to the second element, the SIGNAL GENERATOR, as their trading system. The dictionary defines system as (1.) a set of facts, principles, rules, etc., classified or arranged in a regular, orderly form so as to show a logical plan linking the various parts; (2.) an established way of doing something, method or procedure; (3.) orderliness or methodical planning in one’s way of proceeding.

  Herein lies one of the major problems for traders, because we allow our thinking to be too narrow in governing our activities towards trading. The rule on  TOTAL system of trading. Definition (1) above describes any model while (2) describes the trading model and (3) describes what is required to maintain the model. Understanding the implications of all three aspects of the definitions extremely important if one is to become a “medal winner” in the Futures Market.

  In searching for, or in developing your signal generator, you should know that there is no “perfect one” The fact is that if a hundred of us were given one to use for a year, only a very few would actually be successful. The majority would end up being financial losers due to lack of discipline, ego, fear, and greed. These are all human traits which are so very difficult to conquer we must if we are to gain membership into the elite group of champion traders.

  For these reasons, it became important for Mr. to design a signal generator in which the rules were very concise and which left a little or no room for personal judgment. For example, like many of you, I studied and tried various signal generators. Some of these used “close only” signals so that if a particular commodity closed at a certain price, then that was the signal to take some action. While this is in fact a finite signal for computer analysis of historical data to derive a past performance, in real life it causes a variety of problems.

  For example, have you ever been looking at the quote machine five minutes before market closing, trying to decide weather to submit your order? You know there is a possibility that the market may close at your signal price. However, because you don’t know the actual settlement price until 15 to 30 minutes after  the market closes, how are you to determine what action should have been taken? So, we see that the “close only” signal seems to be theoretically strong, but in actual practice it is not.

  Let us suppose that we developed a signal generator rule in which you were to take action the next day based on the closing price from the previous day. The essential difference here is that we have removed the critical judgement factor. This is a very small example but one that points out how important it is for signal generator rules to be definite, thus they leave no room for personal interpretation or judgement. Later, I will point out another very important reason for definitive rules.

One final note is that initially, it doesn’t matter how good the rules are. What is paramount is that you have established rules. Adherence to your perfect trading system will eventually develop rules that are comfortable and workable for you. Most important, without rules you are doomed before you even begin.

  The third element of the Perfect Trading System is the execution of the Action  indicated by the signal generator. For example, your signal indicator indicates that you should buy “xyz” at the market. You call your broker, give the order, which is then submitted, and if all goes to plan, the order is executed on the floor. The “action” element of the system describes the process that takes place after the order reaches the pit.

  Unfortunately, for many of us, this is the area (between signal and action)
Where most of our difficulties occur. Why is this so? Let me suggest that it has to do with the two human beings that lie between our two elements: you and your broker! Remember the interaction between you and our “old friends” ego, greed, and fear, as well as a few hundred other emotions known to man influence your broker. To the degree that these forces influence you to deviate from the action indicated by the signal generator, you are significantly decreasing your chance of success.

  After the action has been taken, the next element of our trading system emerges. This element is the Result, the bottom line, the truth, the outcome, and the great equalizer. You have either made a profit, broke even, or incurred a loss on the trade. It’s very clear, either you have earned the “medal” or you are a few seconds behind. Of course, it could be much worse- you could have crashed on the course.

  Regardless of your result, what then must follow is our fifth element of the perfect trading system: a formal Evaluation of the result. However, this is exactly what many of us fail to conduct, and thus we never fully understand the reasons for our failure or success. This evaluation process is really the opportunity we have to “coach” ourselves.

  For example: if we achieved a profit, what contributed to that gain? Was it by luck or was it by design? Or, if the result didn’t meet our expectations, why not? Obviously, the ultimate reason for this evaluation is to determine if the signal generator (our rules for action) leads us to financial success. Unfortunately, to the degree that the signal generator is not a set of finite rules, it makes this evaluation very difficult if not impossible.

  Another factor, which effects our ability to judge the value of our signal generator, is what occurs between the generation of the signal and the action taken. If we haven’t been disciplined in following our signals, we don’t know if a negative result is the fault of the signal generator or of some personality variable. Therefore, it is imperative that records be kept each day. If not, there is no foundation upon which to build consistent and definitive action, and we will be lost in the jungle of reports, gossip, rumors, quotes, advisors, magazines, newspapers, and brokers.

  To avoid the traps, which I have discussed, and to be among the winning medallists, you must have a total trading system. Your Perfect Trading system should incorporate a disciplined preparation schedule that fits your life style, a signal generator with definite rules, the discipline to carry out understand why you are doing what you are doing. The evaluation process also allows you to make necessary changes when needed.

  Only when you have mastered all of the aspects of your total trading system will you be able to compete successfully in the Olympics of investments and only then will you have the opportunity to join the elite group of successful traders who are the “gold medal” winners of the investment world.

  So what do those top few winners have? They have the burning desire to win, the perfect trading plan, and the discipline to implement their plan. I’ve presented you with a model for a perfect trading system. Now, you must ask yourself if you have the desire to win as well as the commitment, dedication, and discipline required making it happen. Do you?

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This article was written between the 1984 winter and summer Olympic games. What became obvious to me was that the effort and dedication put forth by the athletes to win in the Olympics is the same effort required to be a successful trader in the Futures Market. These games and the athletes competing in them are so very similar to the world’s Futures Markets and the traders competing there.