What Manual Traders Can Learn From Systems Traders

A reader (Chris, posting with his permission) emailed me recently to ask how he could improve his trading:

I am a part time swing trader and I only trade breakout strategies leaning on Qullamaggie style. I have been doing this for 2.5 years. Although I am not profitable, my winners are larger than losers. My entries have been sometimes a little bit late. But what draws me down: my win ratio is too low. My timing is a bit off. Shouldn’t be trading when markets are below EMA10.


I responded:

If you’re not already keeping a trading journal, you should start immediately.  Start reviewing your journal to search for patterns in the trades you’ve taken. Are there trends you pick up on that you couldn’t see in real-time?


It turns out Chris kept a workable trading journal a year ago, but had gotten lazy about updating it (his words, not mine). After Chris and I had some back and forth, he reviewed his recent trading history and identified several problems:

  • Needs more consistent tracking of trades in his journal
  • Overtrading – Chris sees something moving and sometimes can’t resist the urge to trade it
  • Mid-day entries are almost always losers
  • Chris trades too many lower price stocks; the higher priced stocks turn out noticeably better
  • When trading more than one setup, he hasn’t consistently categorized them as such in his journal

While this may seem sloppy to systems traders, I feel optimistic when someone frankly identifies ways they can improve. Honest post-trade reviews almost always yield a list of concrete steps to profitability.

Sure enough, after a few more questions, we identified several rules Chris could follow that would have made him profitable over the last 12 months. He now has a roadmap to eliminate his over-trading, improve his low win rate, and avoid his biggest losing trades. On top of that, his initial assumption that he shouldn’t be trading when the market is below the EMA10 (10 period exponential moving average) turned out to not have any effect on the profitability of his trading system.

Tips for Manual (Discretionary) Traders

I’ve worked with several discretionary traders and systems traders over the years and while there are substantial similarities between them, manual traders can learn valuable lessons from their systematic cousins.

Keep Score

If you’re not keeping meticulous records of what and how you’re trading, you’re just not going to be profitable, plain and simple. If you’re trading to brag to your friends or post your winning trades on Twitter, then you don’t need a journal. If you want to actually make money, though, keeping a trade journal is an absolute requirement. The most effective breakthroughs you’ll make in your trading career will come from analyzing your journal and seeing in no uncertain terms which elements of your trading suck.

Categorize Your Trades By Setup

Although you may call yourself a breakout trader, a swing trader, or a low-float short trader (like everyone on Twitter these days), you are probably taking different styles of trades within these broader categories.

Systems traders are ruthless at identifying modified setups and systematizing them. If you’re taking trades in a single system for multiple reasons, even if the differences might seem insignificant, it’s critically important to identify distinct categories and start tracking trades in your journal accordingly.

The more precise you are, the more money you’ll be able to make by analyzing specific subsets of your trades. Chris was able to create a simple rule based on price that will improve his trading, but this is setup dependent. This price rule wouldn’t make sense if naively applied to other setups he’s trading, that is, it’s only useful in the context of this particular setup.

Systems Traders Challenge Their Own Assumptions

All types of traders have assumptions about how the market works, but systems traders have the ability to challenge their own preconceived ideas and quickly verify their accuracy.

Take Chris’ assumption about the 10EMA – he presented this theory as fact (he was certain it was true!) until he actually looked at the numbers. Systems traders have a finely tuned process for verifying claims and testing their trading theories. Should you take trades when the price is above the 50 day moving average? Systems traders don’t assume – they efficiently determine the answer using their own personal verification system which they constantly improve over time.

Clearly Define Your Rules Prior to the Trade

It’s very common but always strikes me as a little odd when someone tells me they’re “overtrading” and asks what they should do about it. My first instinct is to say “Just stop doing it” but I realize now this is my inner systems trader talking.

When discretionary traders say they’re trading too frequently, this usually means they’ve looked back at some of their trades and realized they shouldn’t have taken a lot of them. Yes, this is technically “overtrading” but it really points to a bigger problem: they haven’t defined their rules well enough to know whether, in the moment, a trade meets their criteria or not. With hindsight it’s easy to see, but in real-time deciding to take a trade is far more difficult, especially when there might be two or three setups that materialized simultaneously and compete for your attention.

Predefining your rules for the setups you’re taking will make this process far easier.

Learning from systems traders doesn’t have to mean completely automating your trades. Discretionary traders can look over the shoulders of systematic traders and borrow plenty of their good habits, just as Chris did.

  1. Great post Dave.

    Your advice to Chris specific to journaling is, in my opinion, one of the cornerstones of profitable trading. You wrote a blog post back in 2020 about the record keeping that you do around your role as a running coach and there is a quote that is as applicable to trading as it is to running. It reads –

    “What we’ve realized over time that as valuable as the times for the intervals themselves are, the notes about the intangibles turn out to be perhaps even more valuable.”

    The intangibles – this is where the problems are often to be found. Mindset issues… poor sleep… a fight with the girlfriend / boyfriend… stress outside of trading… didn’t eat breakfast… the list is long and so important. A lot of traders, especially new ones, when journaling focus on the data, which is important, but skip the “intangibles”. It is a critical component of record keeping as the quality of the data, for both running and trading, is often reflective of the quality of the intangibles.

    Also, it would be interesting for Chris to review his trades and determine if he is risked / sized properly across his trades. Too often, new traders will risk / size in such a way as to ruin the probabilistic math that is inherent to successful trading. For example, they will risk $100 on a trade that loses. On the next trade, they risk $50 because they are nervous after having lost on the previous trade. This second trade is a winner, but they are half size. This pattern repeats itself over and over with the end result being that the math of large numbers is handicapped in favor of losing trades.

    Great content on your blog, btw. Keep well.

  2. Great comment @dmactrades – thank you. I think you’re referring to this article:


    You’re absolutely correct about position sizing. I see even successful traders getting this wrong. If performance across strategies isn’t normalized in some way through position sizing it becomes really hard to compare. I know some traders are able to do it with just P&L but to me it’s completely unnatural.

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