Date: 12/24/2021
Author: Chris Hood
Be sure to check out new episodes of my video podcast each week, where my ace pupil Brian Jones and I talk the ins and outs of options trading- and give you insights and strategy that you can immediately put to work for you in the markets.
In his work Metamorphoses, the Roman poet Ovid recounts the myth of Pygmalion, a sculptor from the island of Cyprus.
Unsatisfied with the women of his age, he set about carving the perfect maiden from ivory:
“…with consummate skill, he carved
a statue out of snow-white ivory,
and gave to it exquisite beauty, which
no woman of the world has ever equaled:
she was so beautiful, he fell in love
with his creation.”
This story has been told and retold from ancient times to the present and provides a cautionary tale to modern traders.
Becoming consistently profitable in the market is not easy.
It isn’t challenging to build a strategy that works, and when you do, it’s natural to take pride in it. The system is yours – a wonderful creation that’s winning you cold hard cash.
I’d be lying if I said I wasn’t proud of my own trading strategies. They’ve allowed me to live life on my terms.
I work on my own time, at my own pace, and I have no one to answer but myself. Not a bad lifestyle, really.
However, over the years, I’ve noticed other traders develop their own systems and fall in love with them, like the mythic Pygmalion.
Their strategies are the best. Beautiful, clean, and perfect.
They’ve found the holy grail, and they’re finished. They only need to keep at what they’re doing until they’re rich.
Often, these traders develop a sort of religious fanaticism about their trading plans.
Their systems become unchanging dogma, written into books or packaged into online products. If they proselytize enough, a small cult might form around the methodology.
There are two fundamental problems with this.
First, no system works equally well on all stocks under all market conditions. And second, when systems become dogmatic, they cease to evolve with a changing market.
Let’s tackle this issue of universal applicability.
There are bull and bear markets. Uptrends and downtrends could be either quick or grind along slowly. For many weeks, a market might be rangebound with heavy chop or simply flatline sideways.
And that doesn’t even take into account changes in volatility.
No neatly packaged system can account for all these situations.
Here’s where I’ll caution you against putting blind faith in single-strategy books that promise to make you rich. Almost without fail, they omit backtesting data on win rates or profit ratios.
Any evidence given will be cherry-picked from a few successful examples.
What about the other hundreds or thousands of trades the strategy lost?
They rarely include that data. Either the authors don’t know or blatantly hide it from you to make their method seem perfect.
Lack of evolution is the second fundamental problem with dogmatic trading systems.
Complicated methods rarely sell simply because the average trader doesn’t want to put in any actual work. For them, the best system is the most accessible system.
When thousands of retail traders start using a method, especially an unsophisticated one, it doesn’t take long for institutional algorithms and astute professionals to figure out how to beat it.
Why would you think institutional traders and top retail professionals wouldn’t know about your “secret weapon” that’s freely available for purchase at the bookstore?
Trading strategies that give you a genuine market edge must adapt.
They must be personalized, customized, and tweaked when they stop providing profits. I know this from experience, and my methods have changed many times over the years.
The take-homes here are that you can never be fanatical about your system and should never trust those who’re dogmatic about theirs.
Many paths lead to the top of the mountain.
Find yours.
Cheers,
Chris Hood
P.S. My colleague Corey Snyder just banked a solid 27.56% win on SOPA in one day! You can never have enough tools in your trading, so why not bank some extra money by adding some small-cap stock trades to your portfolio. Click here to find out more.
