What is a trading system?
A trading system is a combination of stock trading strategies and methods that traders use to trade profitable.
Why do we need a trading system?
When trading in the stock market, sometimes we make money, sometimes we lose money. In order to become a winning trader in the longer term, we must analyze each trade and take notes on why we win or lose money on that trade. When you lose money on a trade, you want to avoid the same mistake next time or try to minimize the loss for your next trade. When you make money on a trade, you want to keep doing the same thing next time so you can make money next time. Remember, history repeats itself in the stock market, and you should learn from your own mistake. Add all your trading methods and notes together, there you have it, a trading system.
Can you have more than one trading system?
There are more than one way to make money in the stock market and therefore there are many trading system that you can use to trade successfully. However, there is one thing that you should always remember, a trading system that works for other traders or your friends doesn’t necessary means it will work for you. Each trader’s style and technique is different, their tolerance to trading losses are different, so you should always backtest a trading system before you actually start trading that system.
Does the same trading system always work?
There is no one single trading system that will work forever, or else everyone will make money in the stock market. Therefore you must adjust your trading system for different markets, bull market, bear market, and so on.
Should I abandon my trading system if it stops working?
You shouldn’t just abandon a trading system once it stops working. You need to analyze the situation and find out the reasons why it didn’t work. You can’t just blindly keep trading that system because that will make you lose more money. Remember, in a down market, almost all stocks go down and it is hard for you to trade against that trend. You can either stop trading for a while or start shorting which will be another trading system. The same trading system might start working again in the future, so you should always save that system.
How to come up with your own trading system?
In a previously blog entry, I have showed you how you can build and backtest a trading system. Click the link below to learn more
http://stock-trading.dojispace.com/index.php/2010/03/how-to-build-a-trading-system-method/
