A Complete Trading System
A good mechanical trading system automates the entire process of trading.
The system provides answers for each of the decisions a trader must make while trading. The system makes it easier for a trader to trade consistently because there is a set of rules which specifically define exactly what should be done. The mechanics of trading are not left up to the judgment of the trader.
If you know that your system makes money over the long run, it is easier to take the signals and trade according to the system during periods of losses. If you are relying on your own judgment during trading, you may find that you are fearful just when you should be bold, and courageous when you should be cautious.
If you have a mechanical trading system that works, and you follow it consistently, your trading will be consistent despite the inner emotional struggles that might come from a long series of losses, or a large profit.
The confidence, consistency, and discipline afforded by a thoroughly tested mechanical system are the key to many of the most profitable traders’ success.
The Components of a Complete System
A Complete Trading System covers each of the decisions required for successful trading:
Markets - What to buy or sell
Position Sizing - How much to buy or sell
Entries - When to buy or sell
Stops - When to get out of a losing position
Exits - When to get out of a winning position
Tactics - How to buy or sell
Where do you go from here? There is no substitute for experience.
If you want to become a trader, you must start to trade. There is no substitute.
You must also make mistakes.
Making mistakes is part of trading. If you don’t start trading using actual money—and enough money that it affects you when you win or lose—you
won’t learn all the lessons of trading.
Paper trading is not a substitute for trading with real money.
If you aren’t using real money, you won’t learn how hope, fear, and greed affect you personally.
At the same time, it is important to get a thorough understanding of the fundamentals of trading. Armed with this knowledge you will make fewer mistakes, and you will learn much more quickly from the mistakes that you do make.
Trading psychology is the most important aspect of trading, and understanding yourself and your own personality as it relates to your trading is critical. This journey is much more about making a sincere and open-minded attempt to understand your own personal psychology than it is about finding the magic psychology book with all the answers.
Money Management is the most important aspect of a mechanical trading system.
Controlling risk in a manner that will allow you to continue trading through the
inevitable bad periods, and survive to realize the profit potential of good systems, is absolutely fundamental. Yet, the interplay between entry signals, exits and money management is often non-intuitive. Study and Research into the state-of-the-art in money management will pay enormous dividends.
There are a lot of individuals who try to sell themselves and their advice as “expert.”
Don’t blindly accept the advice of these self-proclaimed experts. The best advice comes from those who aren’t selling it, and who make their money trading. There are many books and biographies that give insights into the habits of those who have been—or who are—successful traders.
Learning how to become a good trader—or even an excellent trader—is possible, but it requires a lot of hard work and a healthy dose of skepticism. For those of us who have chosen this path, the journey never ends. Those who continue to be successful will never reach their destination, but will learn to find joy in the journey itself.