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Over the years, I’ve regularly been approached by traders and investors who sought to learn more about my own personal investment journey. If you’ve followed this blog or have been to my company website, you’d know that I’m a massive advocate of technical analysis trading systems in order to invest capital in the market. But what you mightn’t know, is that my journey begun more as a fundamental analyst. I believed that if I invested capital in fundamentally sound stocks and past performers, that I was sure to receive a return both on my capital and time. Sound familiar? Fortunately, I learnt very early on that this wasn’t the case. Instead I was lead down a path that has been both financially rewarding and personally fulfilling.

Here’s ‘My Story’.
In the late 80’s I found myself with capital to invest during a successful sales career in the computer industry. After researching the avenues open to investment I decided to pursue investing in the stock-market. My first investment in mid 1990 was BTR Nylex. My basis for picking it was purely that it had been the best performing stock of the 1980’s!! What sound criteria? I shouldn’t be tongue in cheek about this as many investors pick stocks and managed funds on this basis.

Well BTR Nylex didn’t do that well. It largely went down to sideways as I continued to churn through other non performers. The performers that I picked never seemed to perform while I was in them!! My outcomes made it loud and clear to me that I needed to improve my timing and my basis for choosing stocks.

During the period from 1990 to 1995 I got involved heavily in the study of fundamental analysis and technical analysis. My trading was sporadic and inconsistent and the outcomes continued to be negative despite a 35% bull market during most of 1991.

I reacted to tips, newsletters, brokers input, magazines, newspapers and published company reports all of which I now classify as “noise”. These were my only sources of being “called to action” to take positions in the market – at the time I didn’t know any better or any other way.

I was battling to turn a profit on a consistent basis. I had some good winning trades but also had some shock-horror loss trades. The shock-horror losses more than eclipsed the profit trades such as a warrant trade in WMC that choked up a $14,000 loss. Yes, we remember the big loss trades, they seem to make larger imprints on our subconscious than the big winning trades.

My main problem, in hindsight, was that my trading decisions were inconsistent and subjective and in reaction to “noise” from and around the market. Rather than using my ever increasing knowledge about technical analysis to objectively source an entry to a position I was using it to justify an idea that emanated from the noise. This was the wrong way around.

Despite 100’s and 100’s of hours of analysis spent poured over the computer screen and print outs of charts of price action I was not able to determine in advance what a losing trade looked like compared to a profit trade. At this stage I still believed that I would be able to solve this problem like it was a scientific equation – just like I had been trained to do in my formal university training as a computer scientist, majoring in mathematics and computer science.

In 1995, after 5 years of frustrating trading results, I decided that there had to be better way of approaching this caper called trading the markets. After all, I have a Bachelor of Science degree, was successful in the corporate world, was way above average on the sporting field and had done pretty well in everything that I had pursued. Why not in trading the markets? I had the tools and 5 years of solid research about both technical and fundamental analysis.

After much reading, research and soul searching, I decided to start working on designing a mechanical trading system to improve my own trading results.

Trading system design is not an activity that comes naturally to people. It is an arduous task that requires the necessary technical analysis skills, understanding of price action concepts, computer programming skills, time, discipline, motivation, rigour, creativity and thought patterns to keep on keeping on to a successful end. I know most that start don’t finish.

It was during this time of research and design that I am convinced that my previous life experiences came to the fore – my mathematics, statistics and computer science training and experience, practicing and playing sport and the long distance training and completion of numerous standard marathons and ultra-marathons. I had done the preparation part of the journey before in other walks of life and had experienced the associated successful outcomes. I had to do the same in the trading arena.

Through 1996 the mechanical system started taking shape and at the beginning of 1997 I found myself in a 12 month long trading contest in Personal Investor magazine. It was now or never. Was I to use my own volition or was I to trust the preparation that had gone into the mechanical trading system that I was creating? I decided to use the system because it used market price action to determine when to buy and sell, not my own subjective volition, the outcomes of which I already knew!

This was a life changing eureka moment in my trading life. It was my next major step on my ongoing journey to surrender to and to trust a market researched system.

I won that trading contest which ended in November, 1997, a period that included the 10th anniversary of the 1987 crash. The ALL-ORDS dropped 10.8% in the last 6 weeks of the contest! The opening paragraph of the last report in Personal Investor for the contest was as follows: “By the length of the proverbial straight, ShareFinder has won the shares tipping competition.”

Subsequently Personal Investor ran another trading contest in 1998 which I won again using the medium-term mechanical trading system which was formally released as a product in August 1998. It was called SPA or Sustained Profit Advantage.

In 2001 Personal Investor re-introduced the idea of a 12 month long trading contest. Again I was invited to participate and again I used SPA which had become a far more mature product at that stage.

I was again successful in the year long trading contest which used $100,000 starting capital. SPA performed very well in the January, 2001 – January, 2002 contest, the period in which 9-11 occurred. Despite the extreme volatility in the markets, SPA managed to return 29% in the same period that the ALL-ORDS posted a return of 4.5%.

All through this time I continued to trade my own accounts mechanically, using the SPA system, and my trading performance continued to improve, matching and surpassing the results achieved in the trading contests. What was really happening, as I was later to discover when I met Mark Douglas, author of Trading in the Zone, in 2004, was that my trading habits were transitioning from thinking with a societal paradigm to thinking with a market paradigm.

The mechanical system was transforming how I thought about the market. The more mechanical trades that I completed, the more empathetic I became of market price action and how it behaved. I was seeing the price action objectively from the market’s perspective rather than from my own perceived perspective and how it may potentially hurt me or benefit me. There were no more large loss trades and I started to achieve consistency. I had largely overcome the ‘noise’ that surrounds the market most of whom see the market from their perspective.

I continue to use SPA3 as a major part of my own investment approach.
SPA3 has become a highly automated mechanical trading methodology for managing personal portfolios that requires just 10 minutes a day to process leaving me plenty of time for my family, running a business and playing golf. The return to effort ratio in the past has been incredibly high.

I have found that medium-term mechanical trading of stocks has worked best for me – it has become the backbone of my trading life and which I have been fortunate to have been able to share with over 2000 other like minded SPA3 investors.

There is a well known Chinese Proverb that says; “To get through the hardest journey we need take only one step at a time, but we must keep on stepping”. This has been my approach to the markets since I began investing in the early 1990’s. The journey continues……


  • Richard says:

    As a member of AIA I like the idea of “Investors helping investors”. I’m finding your Blogs a great help in getting my own thinking sorted. As a PhD in Applied Maths I like the technical/mechanical approach to the market. As an MBA I like to delve into strategic aspects of the individual companies.
    Again thanks for helping an investor.
    Keep up the good work.

  • David McCulloch says:

    Cognitive biases have a huge impact on the way we look at the world. Unfortunately our prior learnings shape the way that we interact with the markets and the realisation that these biases are not serving us well is often associated with a large degree of pain, in this case financial pain. That pain, if sufficient will cause a shift in the way that we think and it is at that time that new learning can occur. Learning to think like the market, putting on your “market hat” so to speak, is in my opinion the most important cognitive change that all traders need to make.

    • Gary Stone says:

      Response to Comment by David:

      You are spot on.

      An important ingredient involved (there are many) in whether we actually embark on the learning process after the “large degree of financial pain” (or emotional pain), is ‘desire’. Most give up and hence pay the price (pain and money lost) to learn but don’t continue the learning process. Unfortunatley they put more emphasis on the money by being so attached to it that they don’t persevere and stick around to learn the lesson. “Tried that once and it didn’t work (in my universally knowledgeable opinion).”

      In this quick fix gimme world in which we live, people are becoming more and more naive about what is needed to be successful in most things in life, like desire, passion, perseverence, patience, self-control, at peace regardless of outcomes, trust, belief, attention to detail, big-picture view, overcoming attitude, self-knowledge, etc etc. Because the majority of human beings that hang around financial markets magnify the importance of money, all these traits, or the need to practice them, also become magnified.

      The solution, as in so many things in life, is a paradox and lies partly in becoming detached from the money, that is demagnifying the importance of money……. another blog?


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