The Components of a Complete System - Part 2
(see Part 1 for beginning)
A Complete Trading System covers each of the decisions required for successful trading:
Stops – When to get out of a losing position
Traders who do not cut their losses will not be successful in the long term. The most important thing about cutting your losses is to predefine the point where you will get out before you enter a position.
Exits – When to get out of a winning position
Many “trading systems” that are sold as complete trading systems do not specifically address the exit of winning positions. Yet the question of when to get out of a winning position is crucial to the profitability of the system. Any trading system that does not address the exit of winning positions is not a Complete Trading System.
Tactics – How to buy or sell
Once a signal has been generated, tactical considerations regarding the mechanics of
execution become important. This is especially true for larger accounts, where the entry
and exit of positions can result in significant adverse price movement, or market
impact.
A Complete Trading System covers each of the decisions required for successful trading:
- 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
Stops – When to get out of a losing position
Traders who do not cut their losses will not be successful in the long term. The most important thing about cutting your losses is to predefine the point where you will get out before you enter a position.
Exits – When to get out of a winning position
Many “trading systems” that are sold as complete trading systems do not specifically address the exit of winning positions. Yet the question of when to get out of a winning position is crucial to the profitability of the system. Any trading system that does not address the exit of winning positions is not a Complete Trading System.
Tactics – How to buy or sell
Once a signal has been generated, tactical considerations regarding the mechanics of
execution become important. This is especially true for larger accounts, where the entry
and exit of positions can result in significant adverse price movement, or market
impact.
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