There are more trades than you could take in your trading when you have tip service. Every psychological issue that we have as traders and as human beings, comes into play when you’re trying to pick which one you want to take between one and the other. You can’t take all of them, but if you will, you might as well have no trading tips and throw a dart at the dartboard because that would at least eliminate your psychology and the challenges we face because humans are not very good at making trading decisions. It’s not what we are built for, we’re built for surviving in a social environment, running away from danger, and keeping ourselves alive. We’re not built for managing risk in financial markets or making financial decisions in the face of fear and greed.
As the taker of trading tips, the big problem is you are out of control of your trading because you get sent instructions such as buying and selling. It’s up to you to say, “Okay, I’ll take this one and ignore that one. And I’ll take this one, and I’ll ignore that one.” You don’t have the background from all those tips to make consistent decisions. You might be able to make sensible decisions sometimes, but other times you’re going to make less than optimal decisions. This is the whole problem with the trading tips industry, all tip providers give you more trades than you could take because they can say, “Look at all of our trades. Look how well they did. There must be something wrong with you. You better buy our next service, or you better buy our premium thing, or you better do this or that.”
In reality, the way to get past it is to take back control of the generation of trading decisions. I don’t mean subjectively deciding, “Should I buy this stock? Should I buy that stock?” But it’s to take your decision making and make it objective and rules-based.
If you’ve watched some of my videos, you’ve probably seen me talk about systematic trading as the answer to many of our psychological problems. This is the answer to our psychological problems as human beings is because it takes our psychology and biases out of the equation.
A system is a set of logical rules that says you buy if A, B, and C are true; if D or E is true, you sell. There’s no need to be updated with the latest news or trend, or what your broker and advisor says. Systematic trading takes all of that out of the equation to get rid of all the noise.
The other advantage of systematic trading is that the rules can be tested when you become objective in your decisions. Since the decisions are objective, you can codify them and then run them over post data, and see how it performs. As soon as you do that, you can say, “Oh, I have an edge. I know what to do. I’m confident in these rules that I can follow them.” Whereas when you’re getting the tips like, “I don’t know if this or that one’s going to be a winner. I don’t know if I should buy the bullish ones or the hot stocks. Or maybe I should buy a bit of both.” All of that uncertainty goes away.
The real shift is to take back control, make your decisions on an objective basis, and a systematic basis to test those rules you’re going to use to build confidence in them. Then you can ignore all of the tip providers from then on because if you’ve got rules that you’ve tested and you are confident in, all you have to do each day is run the rules and see which stocks come up as a buy and which stocks come up as a sell.
It probably sounds easier, but the rules can be simple. Simple rules like for example, if you buy a stock the first time and it makes an all-time high, then, it comes down and creates a new all-time high like it was up and it’s going up at that point. It’s pretty scary to buy an all-time high, but you can’t argue that it’s going up. Then, if you bought a stock at an all-time high, and then you held it if it kept going up, but if it fell 20% from its subsequent all-time high from its subsequent high, if it fell 20%, then you get out.
What that’s going to do is get you in 100 percent objectively. You don’t have to debate when it made a new all-time high. Therefore, you buy and hold it until this other absolute objective thing happens that allows you to stay in the stock if it keeps trending up. However, if the stock turns around and starts going down, you get out and hope that it keeps going up so that when it turns around and goes down a little bit, you’ve got some profit, which is the difference. Thus, simple objective rules like that have much better rules, but that one rule with the addition of a couple of little filters will beat the market, higher return, and lower drawdown. That eliminates the need for tips, eliminates the confusion, and overwhelm.