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Thinking from a system’s perspective

With systems operating around us and our lives essentially dominated by systems – systems that are designed by humans for use by humans – why is it, that we seem to struggle to be able to accept this concept and the use of systems when it comes to investing in the share market? People flounder around in the markets basing their decisions on all sorts of crazy ideas, and a wonderful array of information sources all leading to arbitrary decisions that leave them feeling emotionally attached to the outcomes and to their success or lack of it as investors. This decision making process is based on our innate need to be right! From all those lessons at school and in our work environments our brains are conditioned to being right. If we give the right answer, we get the reward- whatever that may be – from the star from the teacher in kindergarten, to the pay rise or promotion at work. Being right is conditioned into our psyche – making mistakes is bad, being right is good.

But the markets have a different idea.

In the markets, being right all the time isn’t necessary to make money.

In the markets, trying too hard to be right can cost us money.

In the markets, wanting to be right all the time will cost us opportunity.

In the markets, wanting to be right all the time will lead to stress, frustration and anxiety.

In the markets, being wrong can be a good thing.

In the markets, accepting defeat is a good thing.

In the markets, using a system is a good thing.

In the markets, operating from a systems perspective will lead to success.

You see, the major issue with trading in a discretionary or subjective way is the interpretation of data and information. As humans, we all ‘see’ the world differently. What appears as something to one person can appear completely differently to another.

One person’s interpretation of some new data or information and the impact it may have on the price of a share, or the market as a whole, will differ entirely from that of another person. But, both think and believe that their interpretation is right. As a result, one may want to be a buyer whilst the other one a seller – only one will get it ‘right’ and the other will be ‘wrong’.

Same thing happens again next time some new news or information comes out. Same two investors, same two individual decisions in the quest to be right, only this time the result is reversed. The guy who was ‘right’ the first time is ‘wrong’ this time, and vice versa. Conflict, debate and emotional involvement have already begun! Continuing to approach the market from this perspective and with this mindset will wreak financial and emotional havoc with the average investor over time.

Using a system will eliminate these subjective decision-making processes and replace them with an objective and disciplined approach. A system for interacting with the market will provide you with a strict set of rules and guidelines for buying and selling shares consistently and with a disciplined approach without rationalizing the decisions you make. If you use a system that has an ‘edge’ over the market, it will ensure long term profitability. The system will remove the need to be right and replace it with a detached response to the outcome of each attempt you make to enter a profitable trade. The importance of the outcome of each individual trade or investment will lose significance and be replaced by the importance of the overall performance of the system over time.

This is a massive paradigm shift for most investors but liberating in the same breath.

Thinking from a system’s perspective totally removes the need to be right and shifts our focus to the performance of the system as a whole, rather than worrying about each individual trade or investment decision we begin to look at long term performance in comparison to our bench mark.


  • ian says:

    We need a system. No system is foolproof.
    Technical analysis by itself is not enough.

  • Gary Stone says:


    Agree wholeheartedly that no system is foolproof.

    However, there is absolutley no doubt that technical analysis by itself can be enough. SPA3 and many other mechanical systems traded in the futures market over many years proves this.

    Fundmantal analysis by itself can be, but only for those with a long term horizon that are happy to withstand deep drawdown if the market has large corrections such as the GFC and 1987.


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