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Originally Posted by James
Elements of a good trading system:
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1. Simple entry signal based system (with at least better than 50% succes rate).
2. Risk reward 1:1 (same stop as limit)
3. In currencies ther is little to gain from having more than ONE pair in play at the same time.
4. NO system behaves exactly the same way in ALL markets. Look for a different system (or variation of the same system) for volitile "news" related markets, one for strong trending markets and one for ranging markets. They can be the same system with different interpretations depending on the market situation.
5. Again, any system will have drawdowns and there is no telling when this can happen. The idea is to use a system that has been backtested for at least 6 months (1 year optimum) and gives positive signals 50 percent of the time or better. In my case i set my loss tolerance to 5 or 6 consecutive trades before I pause and look at the market conditions in relation to my system.
6. Any trader with a little discipline can trade ANY tested system. If you aproach it in a simple "if this happens then I do this" manner and stick to it. What I do is to work on a worst case scenario basis. I accept the possibility of it and if it happens then there is less emotion.
These are some of my thoughts. I think that the more we detach emotion and decision making AFTER the trade has been placed the better we will be as traders. Once you pull the trigger it should be on autodrive. Making the decision to pull the trigger should also not deppend on your mood or your pending car and mortgage payment that week. You should spend your time creating good signals and then waiting for the signals to occur. Once the signal occurs the ENTIRE process should be just execution NOT decision.
Just my 2 pennies,
Charles