The Most Important Aspect of System Design – Objectives

Posted on 04. Jun, 2009 by admin in Forex Education

The Most Important Aspect of System Design – Objectives

These trading tips will help you get yourself in the best possible condition mentally to perform at a peak level. They are not necessarily new, but they are critically important.

So whether you’ve heard them before, or not, now is the time to employ them in your trading and in your life. Both will improve as a result.

Jack Schwager’s primary conclusion after writing the first two Market Wizard books is that great traders all have developed systems that fit who they are. I tend to agree that that’s one of the secrets to success. So to design a system that fits you, you need to know several things:

• You need to know who you are. How can you design something that fits you if you really don’t know who you are?
  • What are your strengths?
  • What are your weaknesses?
  • What are your resources?
  • What are your limitations?
  • What are your beliefs about yourself?
  • What are your beliefs about the market?
  • What are your beliefs about each part of the system?
• And once you have the answers to all of those questions, then you need to determine what your objectives are

I know a number of people who assess CTAs and hedge fund managers to give them money. And before they are willing to do that, they must know a lot about how the person plans to trade. And all of these people, who know a lot of about system development and systems in general, say that developing your objectives is the most significant part of system design.

Yet, many people will design a system without giving any attention to their objectives and the result is usually a disaster. The most common objective is to make as much money as I possibly can without every having any losses. Such objectives, of course, are totally unrealistic and when you have unrealistic objectives, then you really have no objectives.

My research on objectives, as discussed in Chapter 3 of the new edition of Trade Your Way to Financial Freedom, suggests that there are probably an infinite number of objectives. Therefore, it is key to really go inside yourself and ask lots of questions so that you can determine what your objectives really are all about. And to help you, I’ve interviewed Market Wizard, CTA, and Registered Investment Advisor, Tom Basso about his objectives.

Tom’s answers tend to give you a realistic perspective of what is possible in the market and from that perspective you can begin to determine what your own perspective is about objectives. What do you want to accomplish? What’s the worse case going to be for you? Do you want to make a triple digit rate of return and can you tolerate the potential drawdowns that go with that return? Do you want to minimize the chances of, let’s say a 20% drawdown? You’d like to make all the money you can as long as you totally limit the probability of such a drawdown. This also tells me a lot about who you are.

Many of you might not want to spend a lot of time on this particular topic because it involves a lot of internal searching. But understanding this topic and figuring out what’s right for you is one of the keys to Holy Grail trading. It’s certainly one of the keys to developing what’s right for you.