The Holy Grail of Trading: It’s not your System

Do you have a wonderful trading system, one that consistently makes you money? You probably believe that you have found your holy grail but this couldn’t be further from the truth. Your system has very little to do with consistent profitability in the markets.

I often here amateur investors talk about that the “best way” or “only way” to invest and argue why their way is better than everyone else’s. The passion and energy exuded by these novice investors is wonderful but they are missing the point completely. No one can say that options are better than stocks, commodities are better than options or forex is better than everything, etc… Each investor develops a system that is suited to their own personal character traits and they use a vehicle (stocks, options, forex, commodities, real estate, etc…) that can help them reach their goals.

Investors also debate systems within a market such as: trend trading, swing trading, scalping, shorting, day trading, buy and hold, fundamental trading, technical trading, Elliot wave theory, moving average crossovers, etc… They all work if the “person” understands the holy grail of trading. And that is being able to understand YOU and how your mind works.

However, it is not the system that makes one successful. It is YOU that makes the system work properly. What do I mean? Each individual must master their own personal psychological impacts on their trading results. You must work on YOU to become consistently successful! I recommend reading The Disciplined Trader by Mark Douglas if you would like to understand the psychological trader in you.

To say that one system or vehicle is the “way to go” is ignorant.

Pick up any Market Wizard book and read how these men and women made hundreds of millions in the markets using different systems. The only thing they all had in common was money management and risk management. That’s ALL! Every one of them traded in different ways and used different vehicles but they all watched their risk, calculated proper position sizing techniques and understood their system’s expectancy.

Money management, also termed as risk management is a major part of the holy grail of investing, NOT THE SYSTEM! Novice investors will eventually understand this after many years of trading (some quicker than others).

So, if someone ever tells you that their “system” is better than yours, turn away and run and run fast because they don’t know what the hell they are talking about.

Here are some examples supporting this idea from the Market Wizard books:

  • Michael Marcus turned $30,000 into $80 million trading futures
  • Michael Steinhardt ran a fund that averaged 30% annual return over 21 years trading stocks
  • Tom Baldwin started with $25,000 and eventually traded $2 billion a day in T-bond futures on the floor or in the pit.
  • Paul Tudor Jones ran funds that averaged triple digit returns for five consecutive years trading multiple markets
  • Ed Seykota realized an astounding 250,000% return over 16 years (yes that says 250,000%) managing accounts trading in the futures markets – possibly the best trader of our time
  • Bill Lipschutz traded currencies with a staring account of $12,000 (started out as an architect – very motivating for me since I started the same way).

The list can go on forever but the point remains the same; they all traded different markets with unique systems from different locations (the floor, an office or their home in the mountains) but they all had one major factor in common: money management and risk management.

Just about every market wizard refers to position sizing as a major part of the “holy grail” of trading. Van Tharp (also featured in Market Wizards) coined the phase in the first edition of his book but he only realized that money management was the holy grail after studying and speaking with hundreds, if not thousands of very successful traders. Tharp’s Book, Trade Your Way to Financial Freedom, is a must read if you would like to understand position sizing and expectancy and learn more about understanding “you”.

The Holy Grail of Trading:
Understanding you and combining that with sound money management rules. Conquer these two entities and you will be successful beyond your wildest dreams!


  1. I really should do more studying of the market from that kind of perspective.

    This week markets my first year and I’ve done very well, up 165%.

    But, I think we will be moving into a bear market because of the subprime mess and the burden of the aging population.

    I’m Canadian and we have stronger laws that mean that we don’t have the kind of subprime problem the US has, but I can’t see the US economy not spilling over to other economies. But we have the same aging population problem.

    So, I need to understand the market better because of what I think is coming. I think a lot of the “rules” we think we understand are going to change.

  2. Excellent post. Although I’ve read and have been told many times about proper risk and position size management I don’t stick to the plan as well as I should. Mostly because I keep on feeling that I’d either miss out on a good move or that I don’t want to spend that much time diversifying and leaving all of that capital not at work. Also without a decent amount put into a single position my target calculations of the absolute return would make it seem as it’s not worthwhile even though the risk/return would be excellent at 3-5R.

  3. Deborah,
    Congrats on the yearly gain; I also see a correction but I must remain bullish until it is confirmed (if it confirms).

    What type of capital are we talkng here? Less than $10k…?

  4. Position sizing is the single most misunderstood element to successful trading. The outperformance gained on identical portfolios thru proper position sizing is substantial. Van Tharp is one of the few to address it in a printed version.

  5. piranha, at first I took my 13k to almost 21k and then gave it all back and then some and now am to around 5k 🙁 Lots of volatility in the account lol and I think my 26% win rate out of around 75 trades so far this year doesn’t help out either lol. Good thing the market has seemed to break out of the sideways movement lately to the upside, hopefully I can just jump on some trends and go for the ride.

    Yesterday and today have been great as it probably has for most other people too. I’m just going to keep on doing what I’ve been doing for now and reviewing my trades to see if I can increase my win rate.

  6. thomas adair says

    Developed multiple arbitrages for the financial markets. Arbitrages that produce just a few percent a year, to arbitrages that produce over 30 percent a year.

    In 2001 i started developing, as of now, a dozen arbitrages. I lock in an X percentage, and Y time later, i close out the arbitrage. Over 30%/yr.

    Risk-Free Investing is not only possible, but in abundance. Just that people are told and taught that it is impossible. No risk has been in front of all, but not seen.

    The market is unlimited.

    Thomas Adair


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