3-Your Objectives Guide Your System Development

Dr. Tharp teaches that objectives are 50% of designing a system that fits you. Lesson 3

Examples of possible objectives:

• I want to become a full-time trader making 30% per year for my clients with potential losses no bigger than half of that.
• I want to spend less than three hours a week on trading and get the maximum yield out of my system. While I’d like to minimize my downside, I’m willing to risk whatever it takes to get maximum returns, including losing it all.
• I want to limit my drawdowns to no more than 20%. I’d like to make whatever I can, but minimizing the drawdowns is my primary objective.

No system is a money-making machine that can be turned on and print cash forever. Systems must be evaluated and revised to adapt to changing market conditions. And while there are ways to measure the quality of the system, you will never trade a system properly if you don’t feel comfortable trading it, just as you might have trouble following the advice of newsletters because you don’t feel comfortable taking certain trades that they recommend.

Improving your trading performance will not come from some indicator that better predicts the market. It comes from learning the art of trading and understanding how to create a trading system that fits your wants, needs, desires, and lifestyle.

So ask yourself, how much time and money am I willing to lose trying to trade other people’s systems?

Many traders think about system performance backward. They develop a system to see what results they can get. But that’s not effective. Instead, start with the performance you expect and design a system to that specification.