the other hand, discretionary traders have greater flexibility, but perhaps less ability to determine what they have been doing right and what they have been doing wrong.

The evolution of systems programs involves progressive development of designs for making more effective systems, the capacity for making quantum leaps and expanding incrementally, and then suddenly plateauing and going from plateau to plateau. Systems designers must evolve over time. Unlike discretionary traders who have less comparable competition and who cannot be so readily modeled, systems programs can be readily stolen or modeled to the extent that different designers are working on similar issues and problems. While the systems trading cannot be reverse engineered, it can be copied by putting together bits of information about what the systems trader seems to be interested in. System traders have additional stresses such as development problems, security problems, problems associated with keeping their system going, and all the problems associated with developing the software needed for running the system and keeping it updated.

Systems traders can benefit from learning how to turn off self-doubt, manage stress, and stay focused in pursuing the testing and implementation of their system. The same issues would hold for:

• Ramping up.

• Making decisions about when to extend themselves and to exploit their system fully.

• Deciding when they have developed enough data to implement a system.

• Dealing with the stress of discovering that what worked in the laboratory does not always immediately apply to the real world.

Some traders, especially beginners, may bring erroneous and magical expectations to systems trading. One false expectation is that the system will do your work and relieve you of responsibility for results. If you are a perfectionist, you may spend too much time looking for a systems model to help you to decide on which stocks to trade, when to trade, and when to get out. While such a system might definitely provide a sense of security about making the right trades, the perfectionist runs the risk of postponing actual trading so that he doesnt develop skill in trading.

In actual fact, while systems can collect and analyze large quantities of data, they cannot make your decisions. You have to call the markets, decide when to place your order, and whether to buy on the bid or on the offer. You have to take responsibility for missing a trade or the slippage in executing a trade. In fact, you are never free of the responsibility for how your trading goes. You must make an effort to understand the assumptions of your system and when it is time to go back to the laboratory to test them.

Moreover, in systems trading, it is axiomatic that you do the trade based on the systems signal rather than overriding it and following your hunches. If you are committed to the system, you may have to do things that are counterintuitive, and therefore stressful, at those times when you believe the system may be wrong.

When you develop a system program by simulating events without knowing how the system will work in the real world, you want to do enough simulations so that you can predict what your profit will be based on the size of your sample. If you do not do this, it can be extremely stressful. You cannot know if reality will confirm your simulations until you step into the unknown and test them.

More stress can occur if the systems trading rules are not compatible with your personality. You may have difficulty holding on to a position because of your need to scalp or trouble getting out of a position given a predisposition to hold dropping stocks. You may also find it stressful to hold as many positions as the system allows you to hold, because of a need to be in control of all your trading and discomfort in having to delegate some of these functions to a system. This sometimes gives rise to an urge to override the system, but the best systems traders prefer to stop trading and try to improve the program rather than override it.

The Use of Systems by Discretionary Traders

Some traders use systems programs to measure volume as a percentage of price, sorting data by highs and lows, positives and negatives. Systems are useful for confirming the value of a trade in a stock with a good story, for confirming perspectives, and generating new ideas. They are particularly useful when a good stock is trading poorly and you cannot find an explanation. The systems program enables you to analyze more data than you can by yourself. It watches all 3,000 stocks at once and sometimes comes up with recommendations on stocks you have not followed for years. This system is less accurate in certain other situations such as a secondary, a buyback, an arbitrage, or overseas stock where the ratio may get "messed up."

Reliance on systems trading can help traders by providing a more accurate picture of the market than they might get ordinarily, especially in stressful situations where they might be inclined to misperceive the systems program trend in the market. In this sense, it can give discretionary traders a greater sense of confidence about what is happening and what they ought to do. A systems program keeps traders in the right type of market, days and weeks, where their inclination might be to get out.

Conversely, in a market at an all-time high, where the market is becoming resistant and starting to turn around and catching traders flatfooted, a systems program may help a discretionary trader to get out when he might be inclined to wait before selling.

If you are a discretionary trader with sufficient time energy and inclination, you can develop a systems model that will give you signals that will fit your style. When you build your own, you know its assumptions and can build in the parameters and corrections you want. It can be especially valuable, if you are a master trader, to build a program around some of your own trading perspectives. Your program could, therefore, alert you to more opportunities while multiplying the extent to which it is gathering and analyzing information about more stocks along the lines of your most successful criteria and choices.

In general, though, it would be difficult to model all the rules of the expert trader, and it certainly would not be able to model your intuition very well or your capacity to do the innovative, uncomfortable things when you are in the zone. As a discretionary trader, you can factor many more things into your system that others do not know about or cannot figure out and can, therefore, develop your own niche in the marketplace.

The use of system programs is often motivated by a desire to reduce anxiety levels and to take the emotion out of trading decisions. Discretionary traders often turn to such programs to increase their sense of confidence about their decisions. Nevertheless, when some traders go beyond their comfort levels, they may at times feel compelled to override their computer signals resorting to old ways of trading in the face of stress.

Conclusion

One of the big advantages of a systems program is the ability to maintain attention to the marketplace and a consistent degree of flexibility not subject to fluctuations in fears and emotions. It is always able to assess incoming data, with the same dispassionate perspective as has been built into it, and it does not freak out when things go contrary to plans. If you are using such a system, you only need to be able to make decisions about the information and analysis gathered and presented by it.

Such a program does not get depleted of energy and develop fatigue, depression, and errors. It does not lose capacity to focus on events by being preoccupied with its own internal, psychological state. Its data acquisition and reasoning capabilities are not vulnerable to the distortions of anxiety and can keep mental errors down to a minimum. Systems programs do not anticipate repeated failure that intensifies anxiety and throws off performance.

The great virtue of computerized programs is their steadfastness under dramatically changing and unpredictable market conditions. Again, this is one of the best reasons to supplement your trading with a systems program. Unlike the human trader, the computer can treat each trade independently and is not constricted by negative or repetitive thoughts from the past that predict and produce poor performance.

Reference

Kiev, Ari, Trading to Win: The Psychology of Mastering the Markets, New York: John Wiley & Sons, 1998.