Ive just noticed the comment about handling consecutive losers psychologically, and its a good point.
I used to trade a method very similar to BBMAC's, (and still do occassionally just to keep my hand in). That method is very in tune with the market, and it tends to have an extremely high strike rate, partially because its a sound methodology, and partially because in my case at least, I was happy to trade at R:R ratios of 1:1 or even less at times.
I'll happily admit to having major pyschological issues with consecutive losers when trading that particular system. 3 consecutive losers would cause me real concern, I'd start to reduce risk, I'd close profits early just to book a win, and this would negatively impact on my results. I was never able to trade the method with a large account, I was able to make enough to make a living, but I was never going to make serious money, unless something changed.
My current method is 100% automated. Its more like an exercise in statistical process control than trading. I have a better theoretical understanding of what my edge is, and far better understanding of the sort of distributions in returns that I can expect to generate, and as long as returns fall within those distributions, I'm comfortable. I also guess that the fact that I've been doing it for a while, and even if I hit drawdown limits tommorrow and had to stop I'd still be well ahead probably helps. I also have the confidence that I've been able to build and trade a system once, and I could do it again. Although execution is mainly automated, I do tend be quite busy with data analysis, evaluating modifications etc, and I do find there are times where a month goes by where I havnt paid that much attention to the day to day returns, and therefore been unaware of particularly bad days that might have been cause for concern.
The other issue is that I'm quite widely diversified. If I'm trading the discretionary system I might take 2-3 trades a day. With the automated system, I might take 60 trades a day, so a run of 14 tends to get lost in there.
Its no secret that I mainly trade random entries, and that kind of helps too from a psychological perspective. For example, yesterday evening I identified a couple of support and resistance zones of interest for today. I had a support level on cable at 1.5665, from which I've taken a couple of trades today (if memory serves me correctly its a 1 hour swing low from last week, and a previous high from the week before)
I was talking to another trader yesterday evening, and mentioned when asked that apart from the random thing, I'd initially be trading cable and looking for shorts from 5763 area, or a long scalps from 5665 area. Although I should know better, I find myself really caring about the outcome of those trades. Partially because of the ego involved in making the call, and partially because it reflects on my ability as a technical analyst (if you can call drawing a couple of lines from previous swing highs and lows TA) I know its nonsense, and I should know better, but thats the reality that I have to live with.
During the time that its taken for me to take 2 scalps on a relatively small account, an automated sytem running on the nearest computer to me has taken 9 random trades, on a much larger account, making over 90 pips and has now stopped for the day. About 10 feet from where I'm sat, I have 2 more machines taking random trades that have been running since this morning, and I havnt the slightest clue what the state of play is there, if its a typical day, they've probably lost money. I cant even be bothered to walk across and wiggle the mouse to find out, or log into the centrallised system that tracks this stuff.
One of the random systems took a short whilst I was writing the previous post. My natural reaction whilst watching would be to close that trade at around 20 pips profit as price dropped back into that support zone (and I would probably have be right to do so as its now back around break even, and will probaly close at a loss), but the fact thats its a random trade, and profit or loss is entirely due to chance rather than skill, removes a lot of the psychological pressure. I honestly dont care if it makes or loses money, a long as the sytem does what its deigned to do.
With a random entry you have no expectation at all, and many of the psychological issues disapear, and management of the trade at that point somehow becomes a lot easier.
I suppose it was my inability to handle psychological pressure particlarly well that led me down this route, and in a strange way its had quite a synergistic effect. Over time, I've been able to add in additional TA filters that I developed through discretionary trading into the random entry systems, and the deeper understanding of the role of random chance, and how an edge should be exploited from my random systems has helped me become a little more relaxed about the day to day returns from my discretionary trading.
I'd also say that when you trade a bunch of diverified systems, you tend to have to take the role of a manager, watching the action play out, rather than having an active involvement and you tend to be a little more dispationate. The other thing is there's usually a system doing OK somewhere, and on the days you are feeling a bit down (during a prolonged drawdown for example), you can focus on reseach aspects of that particular system pin the equity curves on the wall, and give yourself a bit of positive reinforcement. Conversely there's usually a disaster happening somewhere that needs attention too, and keeping busy, and just sticking to the plan tends to help.
To get back on topic, I honestly cant begin to understand how I could trade calls made by a third party without an understanding of what edge they where attempting to exploit, what kind of win rate I could expect, what size of drawdown etc. Its trading blind, and hoping things are going to work out OK.
I'd probably go as far as to say its not even possible to follow someone elses calls.
