Parameters To Select Your Trading System
As a trader you will need to develop your own trading system. You need to test your trading system overtime. Why you need a trading system? You need a trading system to make sure that your trading decisions are not arbitrary and based on your whims or emotions. A trading system will make your trading almost mechanical and emotion free. When selecting a trading system, first try to paper trade it. You need to paper trade your trading system to get the bugs out. Paper trading is not a substitute for live trading but still you can assume that 75% of the results that you achieve in demo trading can be replicated in live trading.
Win ratio and the payoff ration are two highly important figures to know for any trading system. Use the results of these paper trades to calculate your win ratio and payoff ratio. Determine what your personal win ratio and payoff ratio are in using that trading system over time.
The trading system, your money management system and you yourself, all three of you have to gel together. Now in the case of a successful trader, it takes three to tango here. The more profitable you will be over time, the stronger and more developed the relationship is between the three of you. So you have to develop not only a trading system but also a money management plan that suits your personality.
A trading system is not enough. You need a good money management plan as well. These numbers are required in developing a sound money management plan that will work hand in hand with that trading system. What can be the best parameters to selecting your trading system? When selecting your trading system, use these five parameters:
1) Trade entries in the trading system are defined by market price activity, key support and resistance levels, volume and volatility dynamics and not on random and spontaneous decisions.
2) The initial stop loss exit is determined before entering your trade.
3) The trading system that you select is rule based. Just like the trade entries, the trading system determines the trade exits by market price activity, key support and resistance levels, volume and volatility dynamics and fundamental rules, not on any arbitrary dollar loss that you feel comfortable with.
4) Your trading system has been adequately paper traded or live traded and you have determined your personal statistical performance. You need to know your win ratio and the payoff ratio.
Win ratio and the payoff ratios are two number that are personal to you and your trading system. Some traders would like to use the win ratio and the payoff ratio achieved by the other traders. Do not rely on the results that the other got with that trading system. Use the actual results that you attained while using that trading system in calculating your win ratio and the payoff ratio.
Do not try to rely on computer back tested results. Your personal performance results are the real results that matter. You cannot depend on computer results and other traders results.
5) This is very important. Your trading rules should be written out step by step in sequence so that the entries and exits are consistent, clear and above all quantifiable. This makes your trading mechanical and emotions free.
Have you ever heard of the Turtle Trading System? One perfect example of a rule based trading system is the Turtle Trading System. This system was developed for the commodities futures market.
The story of Turtle trading rules is very interesting. You must know the story of Turtle Trading Rules. The creators of that trading system had a discussion one day. One master was of the opinion that great traders can be made. The other master said great traders are only born.
Both had a bet. Advertisements were placed in the Wall Street Journal and the Barrons. A number of completely new traders were selected to teach them those rules and see if they could become successful traders. Many succeeded with this trading system and became highly successful traders. - 23208
Win ratio and the payoff ration are two highly important figures to know for any trading system. Use the results of these paper trades to calculate your win ratio and payoff ratio. Determine what your personal win ratio and payoff ratio are in using that trading system over time.
The trading system, your money management system and you yourself, all three of you have to gel together. Now in the case of a successful trader, it takes three to tango here. The more profitable you will be over time, the stronger and more developed the relationship is between the three of you. So you have to develop not only a trading system but also a money management plan that suits your personality.
A trading system is not enough. You need a good money management plan as well. These numbers are required in developing a sound money management plan that will work hand in hand with that trading system. What can be the best parameters to selecting your trading system? When selecting your trading system, use these five parameters:
1) Trade entries in the trading system are defined by market price activity, key support and resistance levels, volume and volatility dynamics and not on random and spontaneous decisions.
2) The initial stop loss exit is determined before entering your trade.
3) The trading system that you select is rule based. Just like the trade entries, the trading system determines the trade exits by market price activity, key support and resistance levels, volume and volatility dynamics and fundamental rules, not on any arbitrary dollar loss that you feel comfortable with.
4) Your trading system has been adequately paper traded or live traded and you have determined your personal statistical performance. You need to know your win ratio and the payoff ratio.
Win ratio and the payoff ratios are two number that are personal to you and your trading system. Some traders would like to use the win ratio and the payoff ratio achieved by the other traders. Do not rely on the results that the other got with that trading system. Use the actual results that you attained while using that trading system in calculating your win ratio and the payoff ratio.
Do not try to rely on computer back tested results. Your personal performance results are the real results that matter. You cannot depend on computer results and other traders results.
5) This is very important. Your trading rules should be written out step by step in sequence so that the entries and exits are consistent, clear and above all quantifiable. This makes your trading mechanical and emotions free.
Have you ever heard of the Turtle Trading System? One perfect example of a rule based trading system is the Turtle Trading System. This system was developed for the commodities futures market.
The story of Turtle trading rules is very interesting. You must know the story of Turtle Trading Rules. The creators of that trading system had a discussion one day. One master was of the opinion that great traders can be made. The other master said great traders are only born.
Both had a bet. Advertisements were placed in the Wall Street Journal and the Barrons. A number of completely new traders were selected to teach them those rules and see if they could become successful traders. Many succeeded with this trading system and became highly successful traders. - 23208
About the Author:
Mr. Ahmad Hassam has done Masters from Harvard University. Know Forex Charts! Try This 1500 Pips A Day Forex Signal Service!
posted by X - Men @ 4:02 AM
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