You must have the right trading system to guide you in the intensively competitive environments you will find in the futures, forex and equities markets. The challenge in creating a viable trading system is it takes more than simply finding the one best trading signal. Just like everything else in your trading life, your system should be aligned with your beliefs and your trading strategy.
The way you enter and exit the market should be based on what you believe about your trading strategy and how the markets work. If this is not the case you will always have trouble pulling the trigger when you get a signal.
Your beliefs are the most important driver of your trading system. In Van Tharp’s various outstanding books and courses, he teaches that your beliefs about the market are the most important determinant for finding your ideal trading system.
One word of caution… the Trial and Error approach to system development is a big mistake! There is absolutely no value in using trial and error trying all different entry triggers / buy system / sell system hoping to find something that works. Trial and error in trading signal selection will result in a curve-fitted, worthless trading system
When you use trial and error all you end up doing is curve fitting to past data. Building a system that works fantastically well on past data but doesn’t work tomorrow or into the future. Start with your beliefs and your trading strategy and select trading system that support these to reduce your chance of curve fitting
When you change your approach from haphazard trial and error to a belief / hypothesis based system design you will find enormous benefits such as:
Once you have clarified your beliefs, you are in the best position to define your own trading solution.
If you approach choosing the right day trading system this way, you will end up with a solution you are comfortable trading and you will be able to stick to. The most important thing for system trading is confidence. If you can’t execute consistently you will make costly trading mistakes and you will have no chance of meeting your objectives.
The second most important concept to internalize is to stop stop searching for the Perfect Signal. Determining the value of trading system based only on a trading signal is nonsensical. You can come up with the best entry signal ever designed, but unless you have this rule as part of a complete trading system with all of the required components working effectively together then there is no way you will make money in the long run.
The trade entry trigger is just one part of a complete system. In fact, I would argue it is the least important part of the system (this is a major message that Van Tharp teaches). Entry triggers are the area most prone to curve fitting, over optimization and the random noise in the market. It is really how you exit a trade once you are in that determines how much profit you make from it.The thing to keep in mind is that simple is better than complex; less rules is better than more rules. Complex trading systems with many rules may appear best in backtesting, but they are unlikely to perform well in reality.
This is because it is more difficult to curve fit a simple system with few rules to past data, but if you have many rules and complex manipulations you can very easily fit your system to the nuance of past data. This will render it largely useless in real time trading!
Is your day trading system lacking or not consistently profitable? Watch this Special Presentation to learn the most profitable best practices used by the most successful traders for creating or improving a high performing trading system.
This presentation will show you:
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Commodity Futures Trading Commission Futures and Options trading has substantial potential rewards, but also significant potential risk. You must be aware of the risks and be willing to accept them to invest in the futures and options markets. Don’t trade with money you can’t afford to lose. This website is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this website. The past performance of any trading system or methodology is not necessarily indicative of future results.
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