How To Develop A Profitable Trading System
The secret to developing a profitable trading system is in knowing it's purpose.While most traders try to develop a system that will allow them to have “holy grail” accuracy, along with buying robot systems to make fast money. This is not the purpose of a trading system, and you can forget about 100% accuracy, that is not going to happen. [CENTER][U][B]The Purpose Of A Trading System[/B][/U][/CENTER]Lets start with defining the word Purpose; It means the reason for which something exists or is done, made, or used. So the purpose of a trading system is; (in the order of importance)1. To manage our emotions of greed and fear.2. To manage our money.3. To spot high probability technical trade set-up.[CENTER][B][U]Managing our Emotions[/U][/B][/CENTER]Markets move based on a several factors, the biggest one is crowd behavior/the herd mentality, which is market psychology.The basis of market psychology is the understanding of how the crowd or retail traders react in the market, in accordance to their fear and greed. Professional traders understand this and are able to capitalize on traders that can't control their emotions. (In fact they are banking on you to act on those emotions.)We all have the same emotions of fear and greed.To be a successful trader we must have a way to control these emotions. Again, this is the number one purpose (in my opinion) of a trading system. Having defined rules that allows you to control your emotions is critical. (If you will obey them.) you will or should have profitable trades. (More wins then losses if you have an understanding of good technical set ups.)In my personal experience, the #1 reason new traders lose money,is do to their lack of ability to control their greed and fear. I myself have fallen pray to this having no system to help me with this![CENTER][B][U]Money management[/U][/B][/CENTER]Money management falls in line second to managing our emotions. If one cannot manage their emotions, they certainly will not be able to manage their money. Money management is simply your ability to manage your emotions. You're trading system should have strict money management rules. Allowing you to enter a high probability trade, that if wrong, you will be able to exit with minimal loss to your equity. Your equity is the life of your trading business, it is extremely important to value and protect it. While there are several schools of thought on money management, the 2% rule seems to be the norm. It is said, “you should risk or lose no more than 2% of your equity per trade”.No matter how good the chart looks or your trading system may be. There is a chance that the instrument will go in opposite direction you anticipated and you lose money on the trade. How much money you lose when this happens depends on you! Your trading system's rules will determine that for you. (Again your emotions have a big part in this.)[U][CENTER][B]Spotting High Probability Setups[/B][/CENTER][/U]The third and final purpose of a trading system, is to be able to spot high probability technical set up so you can engage in profitable trades. Most traders focus on developing a holy grail system so to speak, with the hopes of making fast money. They search and a search, trying out different methods and indicators. Although there's nothing wrong with searching different methods and indicators; In fact, this is the only way you will come to know what will work for you. But you must remember, you are looking for a way to spot, and the key word here is spot, high probability technical setups so that you can enter into a trade objectively, no matter what tool you use to help you. Also, there is and always will be countless debates about indicators & tools we use, our should use vs. the next person.It simply boils down to preference. So find what works for you. (Every one will be biased to the tools and method they use. The best system is the one that works for you!) Again, you are looking for a way that will allow you to spot and enter high probability set ups. This is where taking your time to understand the tools and indicators of your choice comes in. And is the final part of the development of a trading system. I suggest getting a demo account to develop a system that works using your method of choice first. Please keep in mind, no technical set up will be 100% and that managing your emotions and money is and always will be the key to having a successful trading system.Thank you, and check out Part 2You can do all things through Christ that strengthens you!May God Bless you and happy Trading!The Eagle Eye Trader
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