The definition of a trading system is a trader’s business plan; it defines your approach to trading…
2. It will define your actions given any circumstances that may arise.
3. It is a distinct set of rules.
4. Which instructs the trader what to do and when to do it.
The importance of this trading plan cannot be understated. Without a reliable set of guiding principles to govern your trading decisions, most traders will hop from one trade to the next, guided by emotion or hysteria.
I firmly believe that not having a plan, you are doomed to fail.
Trading systems themselves will come in many varieties, although they all take the guesswork out of trading. A trading system will determine for you when to buy or sell. System trading has proven itself consistently to be the most effective long-term trading Just like the turtles, I too have studied under a mentor who tutored me in the science of trading. Now, I pass these secrets on to you.
A trading system is simply a set of rules that address every aspect of a trade such as entry and exit conditions and money management. Regardless of how complex it may be, a good test for your trading plan is to hand it to someone else to read thoroughly. See if your selected candidate asks questions. If they can easily understand all the rules and the requirements of your strategy with little to no questions, then you have compiled a sound investment plan.
Since most traders lose money and do not have their trading methodology written down, does not it make sense to do what the masses are not doing? If you are trading now and have not taken the time to write out methodology, then stop trading and get it done!
In other words, if you determined that certain bullish signs show up in your market then you enter into a long position. If these prior events occur, and you did not enter the trade, that failure is your fault.
The Components of Your Trading Plan:
A business plan has set components; so does a trading plan. In fact, there are three major components within any trading plan and they are entry, exits and money management rules; here is a quick summary:
1. Tested Entry Rules
– Entry rules are a precise set of rules that an instrument must pass before you enter a trade. Entry rules should be simple, direct, and leave no room for human judgment.
2. Confidential Money Management Rules
– Perhaps the most important and least addressed aspect of trading is the ability to manage risk. A profitable trader is one who has the ability to manage the risks associated with trading. A trading system should define exactly how much money you are willing to lose on any given trade.
3. Tested Exits Rules
– Entering a share is all to no avail if you do not know when to exit a position. Having rules that defines your exit is equally important as one that defines your entry. By writing down your methodology, you are going to create a series of decisions based on how you see the markets and this friend is just the beginning.
Similar Posts :
- What is the circuit
- Share Trading for Serviceman
- Why Invest in Gold?
- How to Do a Stock Market Research
