Choosing A Day Trading System




Anyone that hopes to trade in the markets should come up with a solid trading system. Below are the guidelines for examining a trading system. How many of these principles do you follow with your current approach?* To validate a trading system you require a minimum of 50 trades in the test. You should also have at least 75 ticks (total market trades) in a bar to have a sound charting approach.* Determine the average profit per trade, the average loss, and the percentage of your all wins and losses.* The largest winning trade should not surpass 50 of the net profit. If not the random lucky trade factor will throw off your system results.* What is the Expectancy Ratio of your method? If it does not surpass 2 to 1 with a 50 but makes money, can you psychologically trade it and except all the losses crucial to follow the system?* As Bill Williams, Bent Steenbarger, Van K. Tharp, and Mark Douglas the Market Wizards all say, you trade your beliefs regarding the market. What does your trading system expose regarding your trading mentality? Does your system lead to doubt or confidence?* Evaluate your trading system to other types of investments. Which system has the greatest Internal Rate of Return with the least risk? You will need at least four times the return of a low risk investment (T-Bills) to make your system worth trading. How do you build a solid trading system? Just like you build anything else. You first start with a goal, and apply the principles to reach the end result. Then you develop a plan to attain that goal, that includes all the risks, rewards, terms and conditions necessary to reach your goal.The absent element is time and again the next step: execute the plan, closely monitor your results, and make incremental changes or modifications to the system. The final step is to monitor your emotions to observe if you can actually trade these signals, and play the probabilities for gains versus losses as you have laid out your system.Mental control is the most difficult part of any trading system. Have a plan, and trade your plan. This is the best avenue to accomplish your goals.--Bill McCready developed a trading system that works consistently and accurately for day and swing traders. Information about his trading system may be found at http://www.emini-trading-online.comSource: http://www.articletrader.com
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