Trading System: A Beginners Guide

 

To succeed in the market you need to have a trading (or investing) system.

System =  A set of rules

• What to buy
• How much to buy
• When to exit; profitable and losing trades

Design a system that is in line with your personality, and time allocation for trading purposes. Don't design a system that uses H1 time-frame when you have other commitments during trading hours. Don't design a fundamental analysis system when you don't understand the information presented in financial statements. Can't read a chart, forget about technical analysis based systems!

After you've designed your system, it's time to test it (or back test it if you're an advanced Trader), you can use a demo account but I prefer to use a small, reasonable, real cash account (you can't back test emotions on a demo account).

If the system is profitable, and you're emotionally ready to trade it, use it in 10, 50, and 100 trades. Check the numbers.

• Win rate, percentage of winners vs losers
• Win size

Ideally you want a system that has over 50% win rate. However, if your win size is large; your win size dwarfs the losses, you can get away with a system that has less than 50% win rate. With a risk to reward of 1:3 you only need a 33% win rate.

A simply as that, you now have a profitable system. Use it with discipline, sit and watch your equity curve grow. There will be draw downs, part of the game, you can't run away from them. But you won't be fazed as you know your system has an edge. Each loss brings you closer to your large win which will cover most of your tiny losses.

Still confuses? Worry not, I have created a simple, easy to follow Systematic Trend Following Cheat Sheet that includes how to videos. But if you don't need the videos, you can just get the Cheat Sheet only.

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