posture associated with a positive mental image to create a winning mind-set and reduce negative reactions to past events.

Traders can also pay special attention to their bodily preparation. Tighter muscles lead to tension, slowed reflexes, and diminished ability to visually track and assess the movement of rapidly moving stocks. Shortness of breath may reduce endurance, hamper concentration, and trigger panic attacks. With relaxation and deep breathing exercises, you can master these anxious responses and enter into a calm, meditative state so that you can access past, positive memories and prepare yourself to enter the "zone." These affirming memories recreate your sense of purpose and help build a positive set of expectations that will increase your ability to take calculated risks in following your trading strategy.

Recovery also requires that you implement steps consistent with your trading strategy, such as deciding on the number of shares you need to trade to realize specific objectives and measuring parameters to track your performance. You also can measure your efficiency in terms of your ability to generate a certain return relative to the amount of risk you are willing to take. With experience in controlling your downside risk, for example, you may be able over time to trade bigger while maintaining the same degree of risk. Using this kind of productivity/risk measure, you should be able to determine whether you are taking appropriate risks with your capital, without being so risk-adverse as to miss significant opportunities for profitable trading.

Systems Trading

The goal-directed strategies that comprise the essence of a trading-to-win approach should, in general, be at the core of systems trading. Ideally, the systems model enables you to trade in terms of a specific objective or financial target and to boil down market action into a formula or strategy, built around your own trading principles, rules, and assumptions. It enables you to test your hypotheses against historical data before and after you start trading. Given a large enough historical database to cover all situations, this approach assumes that the market is not time bound and that whatever happens reflects some new combination of past events, so that when you actually implement your trading strategy you are not caught off balance.

Systems programs are especially designed to maximize your capacity to concentrate on the most critical variables and to keep expanding your trading volume consistent with the best strategy for realizing your objectives. Systems programs help to quantify the different risk/reward opportunities in the marketplace by giving you a spread of information to track performance and determine the extent to which you are following your model.

The development and application of such a model is less stressful for the systems trader who, in contrast to the discretionary trader, does not need to focus as much attention and energy on being centered and focused in the face of stress, or on mastering self-doubt and other emotional responses. These human responses are inherently

resolved in systems trading by your capacity to handle more information exponentially, which increases your control over future choices.

While systems programs provide you with a layer of distance between your decisions and emotions, they do not relieve you of the responsibility for the consequences of your decisions. You must still endure the ups and downs of trading, especially if you are emotionally reactive. System programs also do not eliminate problems that result from their limitations of flexibility and the false expectations that people sometimes impose on them.

Systems Trading and Stopping Points

A systems model is particularly well designed to assist in bypassing many of the stopping points that are built into the personalities of traders. To the extent that the result is built into the programming strategy, the system can bypass the stopping points that interfere with clear thinking and strategic implementation.

Systems trading ignores the emotional response to a loss that often leads traders to start thinking about failure the moment they experience a loss. In so doing, the system offers freedom from the human response whereby thoughts of failure set in motion a self-fulfilling prophecy of failure.

Systems trading also bypass emotional responses to winning trades. The system does not react emotionally to successful trades, which eliminates the chance of having losing days follow profitable days as occurs for so many discretionary traders. Systems trading allows you to overcome any personal tendency to play below your potential or hold back out of fear of success.

Maintaining Your Rate of return as You Expand

Systems traders look at subtle below-eye-level phenomena with measurable variables and follow a rigorous discipline of testing their signals in the laboratory before ever using them. Discretionary traders learn from experience and spend little time testing hunches in a systematic way in a laboratory. They are more flexible and opportunistic and do not systematically approach the entire market the same way each time.

The best discretionary traders are pattern recognition machines who employ much historical experience, intuition, current information, and the like in a complex system designed to forecast the stock trajectory. First-rate discretionary traders are better under a greater variety of situations than computerized programs because of their greater adaptability to changing markets. Computer, quantitative programs, however, can handle more data and more trading rules. Each model has an expected rate of return and a set of rules tested on historical data that enable you to ratchet up the rate of return by defining specific expectations and decision elements and then calculating the size you must trade to meet that expectation.

Discretionary traders are more volatile and less predictable but perhaps better equipped to adapt their style to short-term market fluctuations and other events that give them a trading edge. Accustomed to rapid shifts in response to rapid changes, discretionary traders who may use systems models to enhance their own trading, are often inclined to modify their systems without modeling them, or override their systems without knowing it. As might be expected, they tend to have higher error rates than the more disciplined systems traders who are committed in principle to adhere to their models and tend to rely almost totally on their systems to trade.

Systems traders develop experience in the laboratory, testing the effects of different hypotheses on the data that they have and testing their hypotheses on historical data. In doing this work, they must learn to pay special attention to biases, transaction costs, and the need for simulations to match reality. As such, they must test hypotheses with data from many different markets. This laboratory testing period can be stressful. Traders may lose time while testing the system and may also discover when they are ready to use the strategy that because the markets have changed, it may not work.

However, an advantage of systems trading is that you have more data to inform you. If your simulations are making money and you are losing money in your trading, you can look to see whether something in your model dropped out of your trading. You can also keep testing to see what you need to add to your model. You can ask easily answered questions and control the process of trading without the stress and emotional responsivity that distract so many discretionary traders from their objective.

Systems trading is perfectly designed for proactive trading. You can establish specific trading objectives and criteria, and you can keep measuring your performance to ensure that all of the relevant data is available and scientifically examined and measured in terms of your hypotheses.

But systems trading is not without its problems. In addition to technical failures, insufficient testing of the simulation model, and lack of congruence between the simulation model and reality, systems do not entirely insulate you from your own emotional reactivity to the success and failure of your trades. By deciding in advance of trading which principles to follow and knowing assumptions of the system, it is easier to make decisions based on your systems computations.

Systems traders lack the flexibility of discretionary traders in their day-to-day execution of orders. One trader described the working realities of systems trading as if he were in a "foxhole with no time to relax." "I have to keep working to make my statistics work out," he said. "I cannot miss a trade which may make my whole day by taking time off to take a break."

Systems traders are trading in a narrow range and must pay close attention to the systems signals, or they run the risks of missing a trade. Their opportunities are limited, and they must keep trying to execute well by paying attention and trying to minimize costs by getting good prices and reducing slippage. They cannot take a day off or change the instruments they are using if they are having a bad day. They have less control over the implementation of their prescribed strategy. The ability to keep to their strategy is thus both a strength and at times a weakness of systems traders. On