Second guess your trading system and you lose your objectivity forever.

Two things can happen when you second guess your trading system.

One: You can get lucky and be wrong. That way you will know that the system is smarter than you, and that you cannot outperform it.

Two: You can get unlucky and be right. If by chance you second guess the system and you happen to be right, then you will always have that doubt in your mind. Is the system right or are you right. And you know that in the long run, you can never outperform a good trading system.

I am sure everyone of you can tell similar stories, or know someone with a similar experience.

I will tell you what happened to me during the winter of 1995 - 1996. In the early days, when I first wrote the system, it was not as sophisticated as it is today. It had no trailing stop function, no drawdown parameter, and it did not even place stops after a signal. It did not have the safety features it has today.

But I had so much faith in the algorithms, and was so well capitalised that it never really bothered me. Besides I had already seen the system signal some spectacular trades, in September of 1993 and November of 1994.(See detail report).

In December of 1995, the system first issued a 'SELL' signal on Friday, December 1st at 119-30, and I went short the following Monday, December the 4th, at 119-28. During the next two weeks the market kept going up, and I got out of the trade on December the 22nd, at 120-09 with a loss of $406.25 plus commissions.(This was an old algorithm trade - X003000000000000000, since removed). The system in the meantime stayed in the trade, short.

The system then went short again on December the 29th, at 121-15, and again I went short the following Tuesday, January the 2nd at 121-03. However that same day I got cold feet and jumped out of the trade with a loss of $250, at 121-11.(This was an old algorithm trade - X000056000000000000, since removed).

Since the system was short, I really wanted to stay short with the system, and went short again on January 4th, 1996 at 120-21, but got out of the trade on January the 5th at 120-09 with a profit of $375. I do not remember why exactly, but I must have felt that the market was about to go up.

During this period I had some problems at work, and was in the process of changing jobs. The fact that I was under a lot of stress, may have caused me to be less objective about my trading, but I was also paying too much attention to the day to day action in the market, which is always bad, since it can easily confuse you, and cause you to forget your initial strategy.

The system then went short again on one of the 'Sideways' algorithms on Friday January the 19th, 1996 at 121-16. The following Monday January the 22nd, I must have hesitated because I went short at 120-14. This made me nervous and I got out of the trade on January 24th at 120-21 with a loss of $218.75.

At this stage the market was moving sideways, and during the next two weeks the system again went short on one of the 'Sideways' algorithms. It went short on Friday January the 26th, 1996 at 120-17, and again on Friday February the 2nd, 1996 at 119-17. Three times in a row. These trades are still on the 'Detail Report'. Check them out.

By this time I had made 4 trades with a net loss of $500 plus commissions. And by trying to outsmart the system I had totally confused myself. I also persuaded myself that the market was moving sideways, that it was going to rally further, and therefore I wanted to wait and go short higher up.

The market hesitated one more week, and closed the following Friday February the 9th, 1996, at 119-23. After that it just collapsed right in front of my eyes and the trade ended with a total profit of $11,562.(See the Real Time results on my web site.)

During all this time I was constantly trying to outsmart and second guess the system. I ended up losing $500, while the trade made a net profit of $11,156.

I went short a total of 4 times, from December 4th, 1995 to January 22nd, 1996. Each time I did not have the patience to stay with the system. Then I spooked myself by trying to predict what the market was likely to do next.

The system also went short 5 times in total, from Friday December 1st, 1995 to Friday February 2nd, 1996. 3 of these trades followed each other, one after the other.

What I was really trying to do here, was not second guessing the system, although in a way I did, but I tried to outperform the system by trying to go short higher up, since I thought the market had still some strenght in it to rally further.

In conclusion, all that I can say is, that whenever I tried to second guess the system or outperform it, I always lost money and missed on great trading opportunities.