For the Autodesk-Bound

I preach a lot about having a set, almost mechanical methodology, because I believe it's the best way to trade. However, what makes it the best is not any specific trading style. Rather, it's being rigorous and objective, so that you keep your emotions out of the equation.

To clarify that point, I thought it might be helpful to read the note below from reader M.V. He's discussing the difference between daytrading and a more long-term approach, but his point is broader: Emotions kill!

Gary,
I emailed you a long time ago about whether someone (me) could take a system based on holding long or short positions [and apply it to] daytrading them.

You said (I'm paraphrasing) that trying to convert to a daytrading system would not necessarily increase the returns, and might even hurt them.

I tried it anyway. I took a single trade (long) and turned it into a bunch of entry/exit trades. The original stay or reverse position daily trade took $50K to $100K in two years, but the daily wiped it down to about $10K.

The reason is emotion. I couldn't stick with my model-generated positions (because I was watching the market and was affected by each trade). I didn't even make many trades (about four a day). The damage is exponential because you are constantly trying to "get back to the model returns" by overtrading or, worse yet, taking the other side of the position in an attempt to make it up.

I learned a lot -- bottom line is that a black box system works only if you blindly place the trades.

And that, of course, is the real gotcha in any trading system: Do you have the guts to make Trade X, when every fiber of your body is telling you to make Trade Y? Only the most successful traders can answer "yes."

Today, the Dow Jones Industrial Average, Autodesk (ADSK - commentary - Cramer's Take), Mitcham Industries (MIND - commentary - Cramer's Take), Bluegreen (BXG - commentary - Cramer's Take), USA Truck (USAK - commentary - Cramer's Take) and Best Buy (BBY - commentary - Cramer's Take).

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Charts produced by TC2000, which is a registered trademark of Worden Brothers Inc.

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And that is the final word from Guatemala, where I remain hopeful that reality television is a fad that will eventually go away. Of course, I've had that hope for about four years now, and the trend appears to be going the other way!

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Mitcham Industries and USA Truck to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

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Gary B. Smith is a freelance writer who trades for his own account from his Maryland home using technical analysis. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Smith writes a daily technical analysis column for RealMoney.com and also produces a daily premium product for TheStreet.com called The Chartman's Top Stocks -- click here for a free two-week trial. While Gary cannot provide investment advice or recommendations, he appreciates your feedback; click here to send him an email.