admin Jul/ 8/ 2019 | 0

I have a good and bad news for you:

To create a trading system is very easy! It takes 5 minutes or less!

But to create a profitable trading system is very hard! It takes months or years!

Are you ready to this challenge? Do you have enough knowledge, experience and are you determined enough to start this long run?

Your development process can be as simple as coming up with a theory and back testing your system.

Let’s start at the beginning:

You have to answer the following questions to know what type of trading system fits for you:

  1. 1., Where do you live and when do you trade? Which trading session(s) do you use (Sydney, Tokyo, London or New-York?
  2. 2., What type of trader you are: swing, day or intraday?
    These are will determine what instrument and time frame should be trading.
  3. 3., What will be your method of entering the market? Are you going to use trading indicators or will you stick with price action trading?
  4. 4., What will cause you to exit your trade?
  5. 5., How much will your risk per trade and overall exposure be?

You must keep in mind:  how and when you enter a trade is not the most important variable for a winning trading system. 

Money management is the most vital component of a trading system because if you drain your trading account, your trading business is over.

When we talk about money management, we want to think of risk per trade and overall risk exposure.

When developing your trading system, you want to achieve two very important goals:

  • Your system should be able to identify trends as early as possible.
  • Your system should be able to avoid you from getting whipsawed.

If you can accomplish those two goals with your trading system, you have a much better chance of being successful.

The hard part about those goals is that they contradict each other.

If you have a system who’s primary goals is to catch trends early, then you will probably get faked out many times.

On the other hand, if you have a trading system that focuses on avoiding whipsaws, then you will be late on many trades and will also probably miss out on a lot of trades.

Your task, when developing your trading system, is to find a compromise between the two goals.

Find a way to identify trends early, but also find ways that will help you distinguish the fake signals from the real ones. This is the part where you’ll spend plenty of time!

Then you have to make backtests and forward tests as much as you can. And fine-tune your system and test and tune and test and tune…