In trading, your system is your method and strategy all combined into one and is what gives you consistency, protects you from substantial losses (hopefully) and provides a sufficient number of profitable trading opportunities.
When you have a system that you fully understand and believe in, this helps tremendously with the whole ‘trading psychology‘ aspect of being a trader.
Needless to say, having that reliable system is also one aspect of trading that many people struggle with. Not necessarily finding or creating one, as they can be found all over the place and making one isn’t really that tough either.
Anyone can make up a system, be it mechanical or discretionary, technical or fundamental, or any combination. Heck just throw some ideas out there and you have a system.
The challenge is ending up with a GOOD system that meets your objectives, fits your comfort zones and performs RELIABLY so that you can have the confidence in it to stick to it with the winners and losers alike – the old discipline challenge.
As you probably know, I created the Trading Performance Analyzer so that you can analyze, evaluate and track the metrics on an existing system, activities that are tremendously helpful in building (or rebuilding) confidence in an existing system, comparing systems to see which is best, and to evaluate changes made to your system when you wish to optimize it.
The new project that I’m working on is a Trading System Design Guide for more of an Engineer’s approach to designing a trading system from scratch, but in layman’s terms, applying the strategies and thinking that I’ve learned over my years as an Engineer.
Where I could use your help is to know what your thoughts, questions and concerns are when it comes to trading systems. This is wide-open here, so any questions you have are welcome.
My objective here is to end up with a guide for designing a trading system that is geared to the beginning, novice and intermediate trader, that will provide you the step-by-step process for designing your own trading system that works, is user-friendly and makes complete sense to you. No more ‘black box’ or ambiguous system to work with.
Simply post your thoughts below. Again, this is wide open, so any question, thought, concern or suggestion is welcome.
Thanks, and yes I will be making this available to you when it’s completed.
Cheers
Brian
P.S. This is the first of a few posts on this project, and the questions will get more detailed as we go along, so make sure to check back here or be checking your inbox.
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you should look at http://www.freetradingsystems.org by david jenyns. on this site he writes extensivey about how to develop your own trading systems.
I have been in 4x for 4 years and I’m still learning the process. I have invested thousands of dollars with peopl who say this will make you “rich”try our progarm or EA,”take your trading to a new level”on and on. It comes down to knowing the markets,set a goal, make a plan and stick with the plan. I think the the kiss techinque,Keep in Simple stupid,is the key. I would like someone to develop a program that if followed to the T,you would make at least 70% return. Is that program out there,can it ever happen,I don’t think so. The markets do what they do. Brian,if you can make a program that teaches you to trade and at the same time make us money then go for it and good luck. I will be another investor in another program to make pips!!
Interesting: you coming up with what someone sorely needs and is working on, and I find the following:
Be honest with yourself, work at putting down a list of bad habits you still may have and must eliminate. Then, Check the list —- Recheck it, and check it again, until all the bad habits are listed.
I workd with a group which checked and rechecked, left the meeting, went home, came back a week later —- and — Lo and behold two out of the group of eleven took a week before they admitted the last bad habit, and added it to their list.! The human MIND can bury some serious “stuff” Ed K.
I think any guide to systems development should concentrate on how to test whatever system is developed; coming up with an idea is easy, adequately testing it is not. To this end, any guide should pay particular attention to statistical analysis of results via Monte Carlo simulation; Monte Carlo permutation; bootstrapping; application of robust, non-parametric statistical analysis; the use of generic time series for out of sample testing etc. Many “gurus” out there espouse the importance of the “mental” side of trading and, whilst not wishing to deny its importance, a lot of what I have read constitutes nothing more than wishful thinking b******t. My “belief” that pigs can fly, that there is a pink elephant in the corner of the room, that one must be in tune with oneself, the market or whatever, does not make it so. Imagine that you have to present to your system to a panel of hard-nosed scientists and engineers who will demand sound, repeatable and verifiable proof that it works. If you can’t do this you haven’t got a tradeable system, but an illusion of a system.
Brian,
I would like to see a system that explains in layman terms how to pick a good trade by using all or any of the moving averages etc and the periods to use and why and then be able to select a combination that suits (all or any).
That is by selecting such and such will give you an indication that such and such may happen. Then explain how to and then be able to back test.
Brian,
Another great idea. System development is something that every trader needs to go through, whether to build a system from scratch or to fit a system to their trading style. Too many new traders focus on the tools of a trading system (e.g., this indicator, that oscillator, some fibs, etc.) rather than on selecting the components that go into building a system. And, perhaps more importantly, WHY each component was selected and what it contributes to the system.
The Business of trading is about being in control. Not of the markets, that is only an illusion. But, in control of yourself and your trading performance. Continuous process improvement requires that you have a clear understanding of just how each component of a process contributes to the end result. And, continuous improvement in trading equals a improved equity curve.
Great vids Brian,
Sometimes i just wish i could start then next day right away so i can practice more, but you can only take it one day at a time. I have played around with several different systems. I want to stay with the one i have now. My goal is to keep it as simple as possible. It appears to benefit me in the longrun but i would really need to stick to one trading system for atleast 3 weeks or so to really be convinced, but i tend to keep trying diffeent things. ANd a couple of the other things i have tried, i like. I guess my question is….when will i stop jumpin around???
thanks
Hi Brian.
I started my journey in the markets 5 and a bit years ago. Being a single parent and needing another way of generating more income I happened to notice an add in the paper about an option trading course coming to town. I was a designer at the time and what hooked me was that all I had to do was to learn the patterns and I would make money. At that time I thought of myself as the queen of patterns, so I paid the $5,000.00 and did my 3 day course. We promised to paper trade for 3 months before we traded live. Well the first couple of trades were a disaster. So thinking I needed more knowledge (of what I didnt know) I paid more money for courses and on and on.
I wish someone had told me that anyone can be a good trader for themselves but first one has to go and find a proffessional trader and sit with him?her do what he/she does and learn from them how to win and how to loose.
Designing a new system may turn out to be the best on the planet but will never provide the core.
so I would prefer to see someone out there ( perhaps you Brian) promoting the idea to new traders the check list of essential and necessary steps that one is required to do for their success
warm regards
Angi
Hi Brian,
I think the first thing you need to do to develop a trading system is to decide what time frame you will be using to determine your entry and exit signals. Then you must determine the direction of the market (using internals, futures, etc.). Then you need a specific strategy (continuation or reversal) to trade that specific market.
You must back test, then forward test each strategy in their respective market (up, down, sideways). At this point you can determine where to place your stops and where to take profits based on your testing.