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What is a Trading System?
It is simply your own strategy for getting in and out of the market - rules you use to buy and sell.
Facts about Trading Systems
The world's most successful money managers use Trading Systems.
Most of the money (over $40 billion) in professionally managed futures is traded using some form of trend following systems.
90% of commodity traders quit as losers.
80-90% of traders will jump on the bandwagon of a new system and trade it until they take 3 losses in a row. They change from system to system to system getting 3 losses in a row with each until they get fed up and quit or lose their capital.
Statistically, most commodity traders quit after 9 or 10 trades, but few quit after 9 or 10 trades in the same system.
Most good trading systems make profits only 40-50% of the time.
10 Reasons Why You Should Have A System
A systematic trading approach will allow you to:
Find consistently profitable trading strategies.
Reduce emotional trading decisions.
Increase confidence to take a trade and make decisions without hesitation.
Know probability of profit before making a trade.
Eliminate strategies which are not profitable.
Find trading strategies that match your personality and risk profile.
Trade multiple markets effectively.
Take advantage of new opportunities much faster and more efficiently.
Take control of your own trading decisions.
Sleep better at night knowing that you are following a trading system that has been tested thoroughly, and has proven profitable in the past.
These are just some of the reasons why developing and testing a trading system can lead to your trading success. A good example of trading software that makes it possible is TradeStation® by TradeStation Technologies, Inc. (f/k/a Omega Research).
Steps For Designing A Trading System
Know which commodities you are comfortable with and can afford to trade.
Learn all you can about these commodities.
Write the rules in a definitive form - plan exactly when to get in and when to get out.
Computerize your system so that you would be able to backtest it.
Test your system for flaws before you trade real-time.
Fine tune your system and retest it.
Implement your trading system.
Monitor your trading system performance and compare it to the test performance.
Be assured that your system will fade over time, so you should constantly refine and improve your rules.
Possible Reasons For System Failure
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