The You Factor, Part 1 of 3, Choosing A System for You

Traders often get into day trading thinking it seems so easy, that it’s a quick and easy way to make money. Then, after starting out they realize it’s not as easy as they thought it was or want it to be. It’s hard to find a system that works that’s profitable. If you find one, it’s difficult to learn it. Then, it can be harder still to execute it, making it seem like the making money part will never happen. Does that sound like you or a trader you know? Traders often forget about themselves, and what they really need for themselves, in order to put it all together and make it work. This is what is called the “YOU” factor. You have to remember to factor yourself into the equation, into your trading plan.

How do you do that? What is it that you need? Well, you do need a system, a good system. But, what you really need is to know the how and why about your system. You need to know how your system works and even more importantly, why your system works, so you know when you are trading live, you will work it. You also need to be able to read the markets, the relevant information on the markets. First, let’s cover what you look for and need in your system.

Strategies vs. Systems

There are strategies and there are systems. Often, the two are confused. Strategies are about how to use the instruments that you are trading. Are you trading futures, options, binaries, stocks? Whatever instrument you are trading, the how to enter action and how to exit action, is the strategy. Some examples of strategies would be basic entries and exits. In addition, examples of a little more complex entries and exits would be: butterflies, iron condors, strangles, hedges, etc. The system is about when to use the strategy, i.e., when you enter, when you exit, where you put yours stops, and when and where you trail your stops.

The Perfect System

The perfect system wins more than it loses, and it makes more when it wins, than when it loses. The perfect system is not one that always wins; that would be nice, but it’s not realistic. In order to have more wins, and make more when you win ,than when you lose, you have to execute the system properly, which requires you to follow the ABC’s of how your system works. You have to follow its rules. It’s about combining good risk management and decent probability.

Systems Should Be Transparent

You don’t need a system that is rocket science, just something simple to use where everything is very transparent. It shouldn’t be based on some magical indicator, or enter when these two lines cross. What your system is and how it works needs to have market theory behind it. The system should have a goal of limiting your losses and letting your profits run when trend trading. It should be a price action driven method, with defined steps accounting for proper expectation of movement and volume. These defined steps not only have to account for how the market moves but they have to account for you. They need to have a why they work because it has to account for you. When developing a system, you have to know what you are doing and why you’re doing it or you won’t follow it.

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