Long Term Secrets To Short-Term Trading

"
grow." 
The problem really is twofold. It is essential to develop a state of mind that allows you to sit through 
corrections on the way to the ultimate prize zone. The second problem is developing an indicator or system 
that tell us when to bail out, regardless of our mental conditioning. After all, even the tallest trees in the forest 
never quite reach heaven. 
"
Preframing" Ourselves 
Now there's a term I wish I would have bumped up against earlier in life. The idea is that if you preframe 
your belief system as to what the future will be like, you can better handle the future. It is one of the most 
valid psychological concepts I have ever used. 
At the start of every trading year, I preframe myself to equity dips by telling myself that at some point 
during the year I will lose money ... and a good amount of it at that. I reframe an equity dip, preframe that it 
may last a month or longer, and that to get through it I simply have to get through it. 
When it comes to holding on to trades, it's the same thing ... which I hope the following charts illustrate. 
Notice how in each example the ideal strategy was to hold. Also note that there were big pullbacks against the

---

228 
trend. These pullbacks took time and money away from you. Usually we mere mortals get shaken out by the 
flames of eternal damnation, just before the up move resumes. 
However, if we preframed ourselves to realize that in all large trend moves there will be substantial any trend 
moves, I have found it easier to suffer through the brimstone. 
March 7991
Volume 28, Issue 3 
Secrets of System Developing and Trading 
Over 20 years ago I uncovered an amazing little secret that I have been trying to disprove ever since ... 
and so have subscribers. 
The "secret" is that effective commodity systems do better without a protective stop loss than with one-if they 
are not reversal systems. 
It is strange but true. If you have a system that is always in the market ... and does a decent job of it ... you 
cannot improve its performance by tinkering around with tighter money management stops! 
I will reiterate the point. If you have a decent system-forget about "improving" it with a protective dollar 
risk stop loss. The reason I have repeated this point is that I find myself, 20 years later, still trying to twist and 
improve systems with protection stops. They continue not making much difference, and usually hurt system 
performance. 
Many subscribers have written, called or canceled their subscriptions because our stops "are so big." 
About that they are correct. Our stop and reverse points are a good distance away from the market ... but ... it 
works better that way. 
As strange as is seems ... for 20 years I have kept trying to improve good systems by using money 
management stops and they have yet to make much difference. What you gain in protection you lose in 
accuracy and profit per grade. Typically a $ stop will cut your percentage on winning trades by 10 percent to 
15 percent and lop your average profit per trade by up to 1/3. What you get for what you lose, is not worth it. 
Here's the proof: results of a system I have been working on this past week for short-term trading in 
Coffee (see Table 14.1). Notice that as the stop gets larger, the accuracy-net profits and total dollars won-all 

---

229