Subjective Trading, Objectively
Subjective Trading, Objectively
Submitted by MagicMan on Wed, 05/19/2010 - 11:05
Tagged as: Array ,One of the most prevelant battles within many traders' minds is that of objective versus subjective trading systems. "Who wins? How can I have a subjective SYSTEM? How can I have a trading plan if my rules are subjective? How can I have rules AT ALL if I'm subjective? How do I pick what is better, subjective or objective trading?" These are all very common, and loaded, questions.
The truth is, I made the decision early in my trading career to take a subjective approach to trading the markets, but at the same time I am always trading 100% objectively. Confusing? not really... The purpose of this article is to examine and explain why I chose to objectively trade subjectively, and how I use this style to my advantage to pull profits from the markets.
| What does subjective trading mean? Subjective trading means nothing more than analyzing the markets with YOUR mind, otherwise known as your opinion. If you are examining a chart, noticing different technical patterns and seeing the chart with any form of internal opinion, you are trading subjectively. Subjective trading is personal. What you see in a chart may be completely different than what someone else sees in the same chart. Many beginning traders have huge problems with subjective trading for several basic reasons. First, subjective trading means that your mind is in control, and with your mind comes emotions; namely, fear and greed. We've all heard these two dreadful words associated with trading time and time again. There's a reason for it! Anytime emotions enter the mind of a trader to the point where actions are manipulated by these emotions, rather than by the price action, the trader is at a severe disadvantage. |
| What does objective trading mean? Basically, just the opposite. Rather than YOUR mind and opinion making the decisions, there are concrete rules either written down, programmed, or deep in the brain that make all the decisions for you. If you show 10 people the same chart with an objective trading system, all 10 will see the exact same results. There is no room for deviation.. Objective trading is becoming more and more prevalant in today's world with superior programming availability and backtesting technology. It is not at all uncommon today for traders to have all orders executed without touching a button with some sort of programmed objective trading system. Objective trading is quite attractive to newbie and experience traders alike mainly because it gets rid of ALL emotions that exist in the traders mind. No matter how greedy or scared a trader is, the only way to deviate from a truly objective trading plan is to break the rules altogether. And, quite frankly, if you find yourself breaking rules in the trading game, you have no business trading in the first place. Objective trading gives the trader an un-opinionated view of the market, which usually gets rid of the unwanted fear and greed. |
| So, what do you mean when you say you trade with BOTH? Don't they contradict eachother? Subjective and Objective are opposites. However, in my trading style, they do NOT contradict eachother. For example, I can have a bull flag pattern that is absolutely subjective. This type of pattern can take many forms, and the actual pattern can play out any number of ways and still be considered a bull flag. However, the way I trade it is absolutely objective because I never once question my actions in the market. Once in a trade, I'm in for a reason and once that reason is gone, so am I! That's how I subjectively look at the market, objectively. I'm often asked which way I trade...objectively or subjectively? BOTH! I have created 100% objective systems make money. Still, I chose to take a much more subjective path with my trading for a couple reasons. First, I know for a fact that my own view and experiences with charts and trading in general are far more advanced than that of a computer can ever be. I suppose this comes with the thousands of hours of chart time and practice. Some call it market arrogance, I call it market confidence. I know that every trade I take will not be a winner. I don't expect to make money on every trade. This helps me leave all emotions at the door. Secondly, I do not believe that any emotionless object (like a computer) should be used alone to make decisions regarding anything that exists because of emotions (the market). |
| How do you trade this way? 1. My trading setups that I use on all markets all timeframes are 100% subjective to a degree. They all improve with experience and practice as you get a "feel" for the markets. Examples of my setups: trendlines, bull/bear flag patterns, double tops/bottoms, head and shoulders, etc... 2. Even though the setups themselves are subjective, and I may choose to take or pass on any trade for any number of reasons, once I am in a trade, everything is 100% objective! Yes, this means that I have hard rules for my trades, but these hard rules are SUBJECTIVE. The objective factor enters the equation after I am in the trade. Once in a trade, the moment the reason I entered the trade is no longer there, I am out. That is objective...no questions asked. Once the reason I entered the trade is gone, I have lost my edge. I'm out! So by trading subjectively with setups I have practiced thousands and thousands of times, I am able to apply objective rules that allow me to get rid of any emotions that would otherwise cause me to make the wrong decisions with my trading. This is the key to maximizing profits in my trading. |
| Example 1 |
Thought Process: |
Example 2
Thought Process: |
| Drills 1. Pick your ONE favorite setup, and write in your business plan that you will focus ONLY one this setup all week. (or for x playbacks, etc) 2. Also write in your plan that for EACH trade you take, you will have at least one reason for taking the trade. And, once this reason is no longer there, you will exit the trade. 3. Now, execute your plan. It is very simple, but not easy in the beginning. Force yourself to take an objective view at the market once you are in the trade. Even if it means a quick 1 point loss, or whatever the case may be, ALWAYS exit your trade once your reason for entry is no longer evident. POST YOUR TRADES FOR EVALUATION! If you do this for even a quick week or two, you will find yourself much more confident and less and less emotionally attached to your trading. And you know what follows...profits  |
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