Why You Need a Trading System
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.
All top traders have an effective trading system. So many different kinds of trading systems exist. Certain ones get you to buy on weakness and sell on strength and others do things the other way round.
Many traders fail because they do not assess how well a trading system matches their temperament. Instead, they chase fads, searching for the “Holy Grail” of trading success; or they waste their money on the latest investing software or buying up the tapes of the latest self-proclaimed stock market guru.
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.
Ask yourself these questions:
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.
