A friend who can ask this question has certainly gained some insights into trading.

Many people trade based on their own "market sense," feeling that when the market drops to a certain point, it's about to stop falling and start rising, so they rush to trade, and the market indeed reverses, making a lot of money. We then feel particularly impressive and have an excellent market sense.

Later on, encountering similar situations many times, the results are sometimes right and sometimes wrong, which makes you doubt your abilities?

It's because the financial market is full of the temptation of profits, which can infinitely amplify human nature. Therefore, most people indulge their desires in the financial market, chasing gains and cutting losses, leading to the formation of this cruel 80/20 rule. A very small number of calm and objective people make a fortune, while most people suffer heavy losses.

Warren Buffett, the stock god, said it well, "When others are fearful, I am greedy; when others are greedy, I am fearful." Only by abandoning subjectivity and maintaining objectivity and rationality in the financial market can one see the truth of things and truly make money.

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When I first started trading, I also had some very intense experiences:

In the early days, I made a profit continuously for two or three months and felt that I was a genius in the trading world. No matter how I traded based on my own feelings, I could make a profit. I felt that I had an innate market sense and was born to do this job, which is not an exaggeration.

But what happened later? Trading gradually started to incur some losses, and my emotions went from initial excitement to frustration, to anger, and finally to madness. I lost all perception of risk, and positions that I would not dare to take normally, I could now open without thinking, just wanting to make back the money I had lost before.

Especially since I had just returned from Africa, where I had endured too much hardship and made money too hard during those years, I was even more unwilling to accept the losses in trading and feared that all my hard work over the years would be in vain.

But my subjective consciousness at the time could not control the outcome of the trades. I guessed that this time I would be right, but I was wrong again. The more I wanted to make the money back, the more the losses rolled like a snowball, eventually becoming unbearable.How did I later realize that subjective trading could not be profitable?

Friends who know me well are aware that I went through a long period of doldrums in trading, during which I had stopped trading for a while. When I started again, I didn't jump straight into live trading; instead, I began with backtesting software and paper trading.

Initially, on the backtesting software, I traded based on my subjective consciousness without any rules, and my positions were random, consistent with my previous trading style. Later, I found that the results of this kind of subjective trading would definitely make money over a short period, but if you continued to trade and extended the timeline, you would inevitably lose money and even blow up your account. No matter how many varieties or market conditions I tried, the outcome was always the same.

So I realized one thing: subjective trading is completely unfeasible.

It was from that moment that I truly understood that to achieve stable profits in trading, one could only seek other methods. Later, I was introduced to technical analysis and learned about trading systems, treating trading as a probabilistic event and discarding my own subjective thoughts, which is when I truly found a way to consistently profit.

What is the significance of establishing an objective trading system?

Firstly, it can stop us from trading recklessly, with clear and explicit standards and an objective and calm emotional state.

For example, previously, I would enter a trade without any basis for judgment, just based on a feeling that the market was going to rise or fall. Now, the trading system has set rules for my entry, such as waiting for a reversal candlestick to form after the market tests the 120-day moving average.

Such standards can completely exclude subjective factors in practical trading. In practice, one only needs to trade according to these two criteria. This not only makes the operation easier but also relieves psychological pressure, eliminating worries and fears.

What if the trading outcome results in a loss? The trading system stipulates that if we are wrong, we should cut our losses, and if we are right, we should take profits. As long as we ensure that the overall profits exceed the losses, our trading is considered successful.Second, an objective trading system can be backtested for verification, which not only ensures its effectiveness but also allows for parameter optimization.

Taking the example of the 120-day moving average mentioned earlier, we can test this trading system in a backtesting software to see how it performs in historical market conditions.

If this trading system has performed well in the historical market conditions over the past few decades, it can be proven to be viable in future market conditions. Why is that? Because looking back at the past 100 years, human technology has been evolving, and financial markets have been changing, but the one constant is human nature. Therefore, the patterns of past candlestick trajectories are similar, and they will not change in the future.

If we have any other doubts, such as whether the 120-day moving average is better, the 90-day moving average is better, or the 180-day moving average is even better, we can compare these three moving averages in the backtest, each combined with reversal candlesticks, to see which moving average yields higher profits and which one is more convenient to execute. Based on the statistical results, we can optimize the trading criteria to achieve the best outcome.

At this point, we can discard our subjective consciousness and start trading objectively based on the trading system. There is no need for thinking during normal times; just persist in execution.

Of course, completely abandoning subjectivity is a very, very difficult thing, but only when something is challenging enough can it eliminate most competitors, allowing a small number of people to make money, right?