What are the components of a successful trading system?

Hi all,

Thank you for coming into this thread. I am trying to gather the opinion of the brightest and creative minds on Forex factor, you!

Today, I have one question, a simple one and there is no right or wrong answer. I just want to know what every thinks.

As always, I believe that:

The more you contribute the more you get back : )

So here is the question:

What are the components of a successful trading system?

I know a trading system is more than just entry and exit. Because there is also money management.

But how would YOU break it down into components?

Looking forward to hear from you. Cheers!

Components of a successful trading system is components of your own trading philosophy. What do you believe in? Is this belief a perception or a valid fact?

Only time, mental epiphanies, and experimentation can tell you. I would start reading a book called Market Wizards by Jack Schwager, as the author states a range of components to successful trading.

I would say there are several elements:
1. the mechanical components: these should all be based on observation / empirical studies. Just creating a system without knowing, if the system is any good is not going to lead to success and only because some people here push some systems, doesn't mean that they are any good. Actually this research phase is the most time-consuming part of trading. Once you got the results of your studies you can come up with the following components:
1.1. the entry & exit: both equally important. however, some system rely far more on entries than on exits. Best is to give both a lot of thought.
1.3. the trade-management: what you do when in a trade, do you move your stop, do you have a time-stop,...
1.4. the money management: how much to risk. this should be the easiest part, once you have the metrics down from the empirical studies you can easily find out how much risk you should take per trade.

2. the psychological components
2.1. discipline: no system will be profitable at all times. Many people can't handle drawdown phases of a system and will then switch to the next system. Ideal for burning an account.
2.2. patience: if you are a scalper this shouldn't be a problem. However, if you have to wait for months to years to get a trade, then this can really become a psychological problem. Buffett pointed out that most people don't have the personality to be investors, cause they lack the patience to just sit and wait for years.
2.3. expectation: if your expectations deviate from the actual results of your method, then you will as well have a problem. You want a 1000%, while your method can only deliver a 50% over a year? Well, then you either need to tone down your expectations or researching another method. Overleveraging shouldn't be an option.

I have never seen or know of a successful trading system but in any investment cycle timing is paramount.

1.simple .
2.few rules ...not more than 7.
3.decent win rate....close to 50,any further down and the losing streaks gets insane.
4.entries with a low MAE... e-ratio above 1
5.decent exit strategies ...chandelier,MA crossover etc that captures most of the trend.
6.money management ...not more than 3%
7.good old luck.

stop loss and risk and reward ratio

Basic Trading System Components

1. The system must make money
2. The system must be able to limit risks
3. The system's parameters must be stable and feasible
4. The system's timeframe must be stable and feasible


Source: http://www.investopedia.com/universi...#axzz2GurqKres

Waiting - for a proper set up - sometimes very long time

Execution - timely and as per system rules

Management - trade management
----------------------------------------

Result - profit accumulation

The primary component of successful trading is being right... as often as possible.

1. The system never costs anything to purchase, because if a person has a system that works they wouldn't need to sell it. They would just teach it. Or, if I can print all the money in the world, why the f*** do I need to sell it? Stop ripping off the poor traders with that pay-for-system!
2. A system that can adjust to the future market. If a system was perfect it would be used by everyone and change the market. Forever there must be buyers and sellers, winners and losers or the market will simply not work.
3. 2 indicators maybe 3, or how about none. Volume and price, really you don't need anything else except to have fun or make your system automated...i.e. when "MA10 crosses MA50 and MACD is below this then...."
4. KISS - yep...keep it simple but sometimes the most simple thing is the thing that is the hardest to explain.

there are 3 components to be a successful trader :

1. take a win
2. take a loss
3. make sure your win is bigger then your loss .

Alot of people talking about money, risk, reward, blah blah blah.. only a very select few people mention what i am about to say here :


The key components in my mind, is a system that demands an extreme amount of discipline, and patience, and a willingness to learn with every move of the market. MM isn't within the system, it's within you.

My 2 cents:

I agree with Custos' comments in post #3.

Some other points:

Three components — fall short in ANY ONE of these, and you're guaranteed to fail:

1. Method — entries/exits must make more 'raw' pips than they lose, over time: AKA positive expectancy, or having an 'edge'. IMO a genuinely robust edge can come only from an understanding of the forces that drive price (e.g. orderflow, macroeconmics, supply and demand, central bank policy and intervention, news, self-fulfilling prophecy, the need to maintain triangular equilibrium, heavyweights' search for liquidity, trapped traders, etc etc) — or at least the price behavior/patterns that they produce. If method was completely unimportant, then every EA would be profitable (reasons explained here).

2. MM — size your positions equally, and small. Textbook 1%–2% equity risk per trade is probably about right, especially for newbies. You need to size small, in order to be able to ride out sequences of losses that will inevitably occur (see table attached to this post), allowing your edge to ultimately prevail. And if you don't size equally, one loss can wipe out the profit of several prior wins. Fixed fractional sizing is as good a method as any: it allows an account to grow exponentially when performance is positive, and it contracts position sizes, i.e. reduces risk to conserve capital, if/when the account goes into drawdown. Risk management is paramount, and is the #1 priority of the real pros. Some examples of the effect MM can have on return and risk here.

3. Mindset — discipline, patience, and a steady nerve. Obviously, a method is worthless if it's not being implemented consistently. Ultimately, discipline can come only from having complete confidence in yourself, and your system.


Things to AVOID:

1. Trying to recover/rescue recent losses: reasons here.
2. Systems without stoplosses; at the very least, you must have some kind of loss exit strategy.
3. Averaging down: losers average losers.
4. Progressive sizing, e.g. martingale variants (also here).
5. Systems with RR < 1. No doubt there are exceptions, but every profitable system that I'm currently aware of aims to make more money on winning trades than it loses on losing trades.
6. Myths listed here.
7. Vended EAs and systems. And anything that seems "too good to be true".


Some other angles covered in my recent posts here and here. Mechanical systems also have the benefit in reducing emotional involvement and decision making.

Finally, somewhat off the topic of system components, but some 'must read' posts IMO: here here and here.

David