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.
It takes three to tango here. The trading system, your money management system and you yourself, all three of you have to gel together. The stronger and more developed the relationship is between the three of you, the more profitable you will be over time.
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) The trading system that you select is analytical and not whimsical based on your emotions. 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) Never ever enter a trade without first putting a stop loss in place. Some new traders dont do it and get their account blown out in minutes. Before you enter the trade, the trading system is supposed to tell about the stop loss. The initial stop loss exit is determined before entering your trade.
3) 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) A new trader should always paper trade in the beginning. But the importance of paper trading for experienced traders does not diminish in any way either. You must not underestimate the importance of paper trading though it is not a substitute for live trading. 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.
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.
Again do not delude yourself by thinking that computer back testing can give you your win ratio or 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) 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.
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 the great masters had a bet. Advertisements were placed in the Wall Street Journal and the Barrons. After short listing, a number of completely new traders were selected to teach them those rules and see if they could become successful traders. Many succeeded with the turtle trading system and became highly successful traders. But only those succeeded who had the discipline to consistently apply the Turtle Trading Rules while trading. - 31377
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.
It takes three to tango here. The trading system, your money management system and you yourself, all three of you have to gel together. The stronger and more developed the relationship is between the three of you, the more profitable you will be over time.
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) The trading system that you select is analytical and not whimsical based on your emotions. 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) Never ever enter a trade without first putting a stop loss in place. Some new traders dont do it and get their account blown out in minutes. Before you enter the trade, the trading system is supposed to tell about the stop loss. The initial stop loss exit is determined before entering your trade.
3) 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) A new trader should always paper trade in the beginning. But the importance of paper trading for experienced traders does not diminish in any way either. You must not underestimate the importance of paper trading though it is not a substitute for live trading. 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.
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.
Again do not delude yourself by thinking that computer back testing can give you your win ratio or 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) 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.
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 the great masters had a bet. Advertisements were placed in the Wall Street Journal and the Barrons. After short listing, a number of completely new traders were selected to teach them those rules and see if they could become successful traders. Many succeeded with the turtle trading system and became highly successful traders. But only those succeeded who had the discipline to consistently apply the Turtle Trading Rules while trading. - 31377
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. Know Forex Charts! Try This 1500 Pips A Day Forex Signal Service!
