Investing: Losers Have Goals, Winners Have Systems

Copyright (c) 2012 Trend Following 101

The title of this article is a quote and you won't believe who said it...

It's not a Legendary Trader or a Type-A Billionaire, or even an elite athlete. It's someone you'd never expect to talk about losers and winners in such a way.

But before we get to discovering who believes this radical statement, let's explore more about why "Losers have Goals, Winners have Systems" when it comes to investing.

What's So Great About a System?

First of all, it's so important to learn the basics of trading in order to become a good trader, over and over again. Most people think there is some secret to profitable trading, and yes, there are techniques you can use to become a better trader.But before you learn those techniques, you need to learn how to manage a trading position, how to enter orders and monitor them, how to calculate risk - there is a long list of basic tasks you need to master.

Not everybody wants to put in this much effort - but generally for those who do, it's worth it.

If you don't want to put in this much effort, you can buy products which do almost everything for you. There are "Robots" and "Software" and you can even buy trade recommendations.

Not everybody wants to become a great trader... they just want some nice returns in their account for their retirement, their kids' education, a nice vacation, etc. So these investors don't really want to learn the ins and outs of investing, they just want the good returns without doing the work.

Great Traders Follow Trading Systems

But some people do want to become great traders. And that's why it's worth the time and energy to learn what you're doing and create a system.

You won't become a great trader until you master the basic techniques. You need to have a robust system in place which allows you to make money - and your system also needs to prevent some random bad event from destroying your account! By sticking to a system that you trust, that has been back-tested and proven, you prevail over random market-events and ride out the trend until it turns a profit. You aren't investing based on "hunches" or emotions, but based on a good system that has proven itself to be profitable.

A trading strategy could make a ton of money over time, but until you have a system in place which makes it easy for you to execute profitable trades over and over again, you will not make money (because for every good investing day, there's a terrible investing day in which you can lose your entire account!).

But when you have a good system in place, you have a couple of things going for you that transcend the whims of the markets: you have your system, first of all, that has proven successful results. Of course, even this doesn't guarantee that you will succeed because past winnings don't always determine future earnings, but they sure put the odds in your favor. And second of all, you aren't just "winging it," you are executing a system.The tasks to follow a system aren't hard to learn, and they are not hard to explain. The difficulty of these tasks is the day-to-day execution.

Even following a system doesn't take all the work out of investing .Doing something correctly one time can be extremely easy. Doing that same easy task correctly 10,000 times can be very hard. That's where a good system makes all the difference - a good system makes doing that simple task 10,000 times much easier.

This is the basis for an investing strategy called Trend Following and Trend Following works. You can see this over and over again - trend trades have made money for decades. Still, new people try trend trading all the time - but only some of them are successful.

The difference between the winners and losers isn't some unique entry system, or a magic exit system, or some complex way to calculate if a market is in a trend or not in a trend. No, the difference in success or failure in trend trading is creating an easy to follow plan which allows you to do simple, repetitive tasks correctly, over and over again. And then sticking to that plan.

Most traders write down their plan so that it's easier to stick with it on a daily basis. I created and use my own Traders Checklist (here's a free download link to it). My checklist seems almost too simple the first time you see it. But once you follow the checklist a few hundred times, you'll find out why it's so useful. Of course, you can customize the checklist for your own use. But you'll also recognize just how difficult it is to do something simple every day when it doesn't seem important.

You'll have checked the amount of risk you are taking on every trade for a few dozen weeks, and it won't seem that important. And then something major will happen in the markets and markets will go nuts with massive price swings.

All of a sudden, you'll have trades go wildly in your favor - and other trades become losers very, very quickly.

If you didn't check your risk and make sure you have the stops in, those trades would have destroyed your account. But of course, you followed the traders checklist, and that movement in the market put a ton of money in the account.

"Losers have Goals, Winners have systems"

So who said the magic phrase "Losers have Goals, Winners have systems"?

It's Douglas Adams, the guy who draws the cartoon Dilbert! The guy draws cartoons for a living, and he thinks systems are important for living.

Here is more of what he thinks about having a good system:

"What I've discovered is that the routine of preparing to exercise usually inspires me to go through with it even if I didn't start out in the mood. This particular day, my body wasn't going to cooperate. No problem. The system of attempting to exercise worked as planned. I didn't have a trace of guilt about driving home. I've used this system for my entire adult life. I see exercise as a lifestyle, not an objective.

If I had a goal instead of a system, I would have failed that day. And I would have felt like a loser. That can't be good for motivation. That failure might be enough to prevent me from going to the gym the next time I don't feel 100%, just to avoid the risk of another failure.

A week after graduating college, I took my first flight in an airplane. I got in a conversation with a businessman in the seat next to me. He was CEO of a company that made aircraft screws. He told me that his career system involved a continuous search for a better job. No matter how much he liked his current job, he always interviewed for better ones. I assume he failed to get most of the jobs he interviewed for, but over time his system worked, and he became a CEO. My own system at the time involved listening carefully to the advice of anyone who was successful. I adopted the CEO's system in my own career, moving to higher paying jobs about once per year until I started drawing Dilbert (while continuing my day job)."

Do you think he has a system for drawing Dilbert cartoons? He's been doing it for a few decades, so I'd imagine he has an excellent system in place for creating his work. I highly recommend you go to his blog and read more. He's a very sharp guy and one who used systems to become extremely successful in his life.

Michael Sankowski lives in Oak Park, IL and has been a professional trader for 20 years. He's traded billions of dollars on four continents and is a well-known financial writer. He's a CFA, CAIA, and has created patented Futures products. He writes Trend Following 101 which sells winning trade signals and free investing tutorials.

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