Profitable ETF Trading Strategies – Trade Like a Defensive Driver

Ken Long asked:

I was giving my teenage daughter some advice about how to survive on the road. As a newly licensed driver, she was naturally apprehensive, because this is a brave, new world for her.

As I heard myself giving her guidance from 35 years of successful driving experience, I was struck by how similar it was to what I try to share with people who are beginning their journey as traders.

Here are some common points to consider, as you look to incorporate perspectives that have served you well as a driver into the equally exciting, dangerous and yet rewarding world of trading

1. Half of the other drivers are below average. Some of them are also drunk, crazy, stupid, preoccupied, unstable, distracted and some are about to suffer a heart attack. ?Never project your own state of mind onto the person taking the other side of the trade. Just assume they are capable of doing the most extreme and surprising behavior at any time.

2. Disaster is waiting just around the corner, and if you are prepared, alert and ready, and your equipment is serviceable, you just may have an opportunity to make a difference if you keep your wits about you.

3. When you are driving, drive. Be in the present. Pay attention to what’s happening and also to what else might be happening.

4. Don’t drive when you are disturbed, crazy, drunk, sleepy, unfocused, angry, or otherwise occupied. Know when you should not be behind the wheel. If there is any doubt in your mind, don’t drive, don’t trade.

5. Keep your equipment inspected, serviceable and complete with redundant safety measures.

6. Know and respect the rules of the road, and the market.

7. Don’t chase, don’t race, don’t drive like it is there for you to have fun, although there is a certain enjoyment and satisfaction available when you drive well and everything is fine. Just don’t forget your purpose is to get to your destination in one piece and unharmed, and without having caused harm through negligence or inattention.

8. Always have an out. Know where your safe spot is whenever you are driving; Which direction will you go if something happens NOW and you must make an instant decision.

9. There are times when the road and weather conditions are more important than your purpose in driving right now. Know and respect your limits, you can go there tomorrow.

10. Know where you are going and why, and the different ways you can get there. Monitor road conditions along the way and give yourself room for surprises and detours. Don’t drive until you are on the edge of empty. Take breaks and keep your reserves topped off.

11. Always buckle up, because there’s one coming that you won’t be able to see despite your best efforts.

12. Old traders didn’t get to be old by being dumb


Profitable ETF Trading Strategies – Understand Your Trader Quality Number

Ken Long asked:

The system quality number that is taught by the International Institute of Trading Mastery is a very powerful way of calculating a single number that describes the relative quality of a particular system, given a set of trading results that are typical for that system. It is a methodology that allows you to compare average results with typical volatility over a statistically significant data set to determine if there is a quantitative and qualitative difference between two systems.

The system quality number is a powerful idea as far as it goes. Many traders, however, discover that the actual results of the system they propose to trade come in different than those suggested by the back test. One of the important differences between back testing in forward testing with real money is the human factor of the trader himself and his affect on system performance.
Sometimes the traders’ actions add value to a system. Frequently the traders’ actions take away value. The reasons for this can be numerous and varied and usually there is a combination of reasons why the trader degrades the performance of a particular system. It is normal for an inexperienced trader to overrule the specific system rules that add the most value to the new system.
An example of this would be to refuse to take an entry signals because of a particular belief in where the market is going to go next. This will normally occur when you see the system rules putting you into trades that don’t make sense to your intuition. It may be the very counter-intuitive nature of the system that adds value to the results. If your psychology is aligned with that of the masses, then you will tend to overrule the system precisely when it is taking advantage of mass psychology.
As a result of this phenomenon, it is useful to think of a trader quality number which incorporates the system quality number as modified by the traders’ actions.? Only by taking meticulous notes of when and where the trader deviates from the system’s rules can we determine if in fact he is adding or subtracting value. By examining the results from numerous examples of trader intervention, we can determine if it’s a good idea for the trader to have discretion or not when executing the system.
It takes an incredible strength of will and character to take a look at the results of your own interventions and then act in a professional manner based on your analysis. If you can do that however, you have the fortitude and character to be a great trader.
Know your trader?quality number as well as your system quality number and let that be your guide.