Why You Need A Trading System
Posted by | Posted in Commodities Trading | Posted on 12-08-2009
Do you want to discover why it is so important to have a trading system? Here’s a great opportunity to assess where you are with your current trading plan and to see where you could go with your trading plan and trading system in the future.
Every successful trader has a winning trading system. There are of course, as many systems out there, as there are traders. Some trading systems get you to buy on strength and sell on weakness others do the opposite. You have to figure out which trading system applies to your personality and your style of trading. if they match up then you are on to a winner.
Some investors succeed as value investors , a la Warren Buffet ; others make their millions in momentum trading . I have even heard of an astrologist who uses the stars to trade profitably. Although, there are a variety of methods, the point I am trying to illustrate here is this: there are many ways to profit from the markets, but you ultimately must devise a trading system that is your own, because the personalization will act as a motivational discipline to stick with the plan.
The fact is there is no perfect system. Successful investors succeed because they choose a system that they feel comfortable with, not one that claims to be the current trend. A cool, disciplined trader will make money with an “average” system, while a nervous, arbitrary trader will wreck a “brilliant” system.
Think of answers to these quandries:
1. Am I designing a trading plan for cash flow or capital growth?
2. Do I want to trade part time or full time?
Decisions such as these will have the largest impact on the style of your trading system.
Entries and exits must be precise and must follow a strict set of rules.
Styles range from aggressive day traders looking to scalp few point gains to investors looking to capitalize on long-term macro economic trends. In between, there are a whole host of possible combinations including swing traders, position traders, aggressive growth investors, value investors and contrarians.
Moreover, your style will depend on your level of commitment and experience. Day traders are likely to pursue an aggressive style with high activity levels. The goals would focus on quick trades, small profits and very tight stop-loss levels. For this, the trader uses intraday charts to provide timely entry and exit points. A high level of commitment, focus and energy would be required.
With this in mind, be sure to define your trading objectives as best as you can. Unless your trading system matches your own criteria, you will never make big profits. You need to ask yourself the simple question: “I am trading in the market because I want to __________”…
Answer this and you are well on your way to setting your portfolio objectives and developing great trading systems.
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