The Components of a Complete System - Part 1
A Complete Trading System covers each of the decisions required for successful trading:
The first decision is what to buy and sell, or essentially, what markets to trade. If you trade too few markets you greatly reduce your chances of getting aboard a trend. At the same time, you don’t want to trade markets that have too low a trading volume, or that don’t trend well.
Position Sizing – How much to buy or sell
The decision about how much to buy or sell is absolutely fundamental, and yet is often glossed over or handled improperly by most traders.
How much to buy or sell affects both diversification and money management. Diversification is an attempt to spread risk across many instruments, and to increase the opportunity for profit by increasing the opportunities for catching successful trades. Proper diversification requires making similar, if not identical bets on many different instruments. Money management is really about controlling risk by not betting so much that you run out of money before the good trends come.
How much to buy or sell is the single most important aspect of trading. Most beginning traders risk far too much on each trade, and greatly increase their chances of going bust, even if they have an otherwise valid trading style.
Entries – When to buy or sell
The decision of when to buy or sell is often called the entry decision. Automated systems generate entry signals which define the exact price and market conditions to enter the market, whether by buying or selling.
(see Part 2 for continuation)
- Markets - What to buy or sell
- Position Sizing - How much to buy or sell
- Entries - When to buy or sell
- Stops - When to get out of a losing position
- Exits - When to get out of a winning position
- Tactics - How to buy or sell
The first decision is what to buy and sell, or essentially, what markets to trade. If you trade too few markets you greatly reduce your chances of getting aboard a trend. At the same time, you don’t want to trade markets that have too low a trading volume, or that don’t trend well.
Position Sizing – How much to buy or sell
The decision about how much to buy or sell is absolutely fundamental, and yet is often glossed over or handled improperly by most traders.
How much to buy or sell affects both diversification and money management. Diversification is an attempt to spread risk across many instruments, and to increase the opportunity for profit by increasing the opportunities for catching successful trades. Proper diversification requires making similar, if not identical bets on many different instruments. Money management is really about controlling risk by not betting so much that you run out of money before the good trends come.
How much to buy or sell is the single most important aspect of trading. Most beginning traders risk far too much on each trade, and greatly increase their chances of going bust, even if they have an otherwise valid trading style.
Entries – When to buy or sell
The decision of when to buy or sell is often called the entry decision. Automated systems generate entry signals which define the exact price and market conditions to enter the market, whether by buying or selling.
(see Part 2 for continuation)
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