I’ve filed for a divorce

I think, and hope, that we can still be friends, but my days of being married to high-probability discretionary trading are over. This separation is amicable and mutually agreed upon. We had a good run, but things ran into trouble last year when the market gave us something we’ve never seen before. Our relationship has never been the same since. The screaming, the accusations … oh, it got ugly. I thought maybe we could work it out this year, but this latest 3-week rally has put a permanent end to our relationship.

High-probability discretionary trading is the mistress or spouse of many traders. She is seductive, beautiful and addictive (lady traders, feel free to visualize her as a him, if you’d like). She promises, and oftentimes delivers, low risk for high reward. There is nothing so alluring as visualizing a setup that has a defined risk (the place where the trade no longer works) and its potential reward, which can be five times larger or more than the risk.

High-probability discretionary trading’s father is Poker. He taught her growing up that it’s all about betting based on the size of the pot and your individual odds. He taught her that you don’t need to play every hand, and sometimes it even makes sense to fold a good hand to get an idea of how others are playing.

Where my relationship with high-probability discretionary trading went bad was in my expecting something from her that she could never deliver. Probabilities that were actually based on reality. You see, her probabilities are a little problematic, and she will be the first to admit it. I know there are many successful traders out there who are still very happily married to high-probability trading, and maybe things would have been different with me if I had just listened more. Who knows. It is what it is.

Even though I’ve had relationships with fundamental trading, intuitive trading and emotional trading, I found high-probability trading worth getting married to. Now that I’m moving on, I’d like to introduce you to my future spouse: system trading.

I know she’s kinda boring compared to the others, but I love her for that. She’s a little frumpy, awkward in public and can’t play sports, but she’s a bit more real to me the than the flashy others.

System trading takes a notion or idea and puts it through a scientific process of validation. It includes backtesting, optimization and walk forwards. It involves compiling a statistical profile for a trade system and the market to be traded. When she fires off a signal, you take it. No discretion. All the work you’ve done on understanding the system depends on you taking every signal. It’s a very committed relationship that way.

If all you like to talk about is the latest reality show and what your neighbor is selling his house for, then you probably won’t like system trading. If you like Wittgenstein, Tolstoy and Gabriel Garcia Marquez, then you may have found your mate. We talk about things like intermarket correlation, genetic algorithms, neural networks, particle swarm optimization and fuzzy logic over breakfast. It’s fun, but then that’s me.

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