Adrian Reid argues systematic traders profit by following repeatable rules at the portfolio level, not by micromanaging individual trades. He compares it to a Toyota factory: consistent processes create reliable results, not obsessing over single items. Performance matters only if you followed the rules.
Now, the whole market could go up and come back, but generally you have a portfolio of stocks and they all behave a little differently.
Right?
So the, the typical trader way of thinking, particularly from discretionary traders who are looking at charts and looking indicators and reading and making their decisions, is they want to make the best decision possible on this trade.
Now this is really, really central to the difference between discretionary trading and systematic trading. As a systematic trader, we don't really care about this trade. We don't have to worry. It may have gone through the roof and then come straight back down and hit the stop loss and come out as a loss. But systematic trading makes its money not by worrying about that one trade. Systematic traders make their money by following a process that over many trades spits out profit. So we don't have.
The need to micromanage or focus on or stress about one stock. What we have is a set of rules that we have to monitor to say, did I get a buy signal or did I get a sell signal in any of the positions that I'm holding? And if I've got spare cash, did I get a buy signal? So I've got time to, I've got room to take an extra signal.
The worry and the concern in all of this comes when we start to think about our open trade profits on that trade. It's like, oh, I'm up $350 on XYZ stock. That's a good trade. Actually, that's not relevant. What's, what's relevant is did I follow my process? Did I take the right buys and sells.
For today? And if I did take the right buys and sells and I keep following my process and over time my account is going to go up. Individual stocks are going to go wherever they go, right? But we need to elevate our thinking above that. It's kind of, there's a couple of stages of thinking, right? The lowest and worst level is I've got this stock and I'm watching its price go up and down minute by minute, stressing about my money. Okay? That's the worst thing you can do because A, it's one stock and B, it's minute to minute noise, so it actually means nothing.
The next level above that is, okay, I've got a bunch of trades, but I've got this stock and this stock is now up 25%. You know, should I take profits or not? Or this stock is down, should I exit before it hits my stop loss? Because I just know it's going to keep going and hit My stop loss. Right. Micromanaging the entries and exits on a trade is like the next level. It's better but still bad.
Right. And we all do this, right? We all do this. So lowest level of thinking is one trade minute by minute.
Right. The next level is, okay, should I adjust the entries and exits and worry about how do I fix the profit? How do I make sure I get profit on this trade and have a, have a win so I can feel like I'm, I'm a good trader and I, I was right. So therefore I'm a good trader. That's the next level. The next level above that is.
I've got a portfolio of stocks. Did I follow my rules today?
And when I ask myself, did I follow my rules today? I'm not asking myself, did I make money? I'm not asking myself, did one of my stocks fall 25%? I'm not asking myself anything about the individual profitability of the day or the trades. It's just, did I follow my rules now, which is the simplest concept to.
Assess yourself on. You know, how well you kind of judge the minute by minute noise, how well you micromanaged the entries and exits on particular trades, or black and white. Did I follow my rules today? Which is the easiest? Top one for sure. Top one for sure. And yet the vast majority of people who come into the market are worried about the bottom two.
Because that's what they think makes them money. The rand, you know, the ups and downs and the noises and the micromanaging the individual trades, but it's not what actually makes the money is a process that has a profitable expected outcome.
Yeah, the, the Toyota factory doesn't micromanage.
One particular car to get the best profit on that car. What they have is a process that constantly spits out cars at a very consistent quality.
And a cost control that means that when they sell the car, they, they make money.
It's the process that makes the money. It's not that individual car.
I mean, yes, the car is profitable on average, and the trades are profitable on average, but they're not profitable because we micromanaged them or worried about them. They're only profitable because the process works. This is the key.
And the thing I really love about this style of thinking is that.
I don't know about you, but when I think about that. Okay, okay, Am I following my process that's far more serene mentally, far calmer, far less stressful than.
Or should I move my stop up or should I take profits or what should I do here? Worried about the news and all, all of that. So we've almost got to let go, or we do have to let go of all of the human impulses of wanting to control and monitor and all of the micromanagement and noise and change everything to try and make money on this trade so we can be right. Because most of that is ego driven about being right about making money about all of that. You know, the ego is less excited about following a consistent process day in, day out and ticking all the boxes.
But the ego doesn't make money.
