When selecting a trading system, first try to paper trade it. You need to paper trade your trading system to get the bugs out. Paper trading is not a substitute for live trading but still you can assume that 75% of the results that you achieve in demo trading can be replicated in live trading.
Use the results of these paper trades to calculate your win ratio and payoff ratio. These two figures are highly important to know for any trading system. Determine what your personal win ratio and payoff ratio are in using that trading system over time.
Now in the case of a successful trader, it takes three to tango here. The trading system, your money management system and you yourself, all three of you have to gel together. The more profitable you will be over time, the stronger and more developed the relationship is between the three of you.
A trading system is not enough. You need a good money management plan as well. These numbers are required in developing a sound money management plan that will work hand in hand with that trading system. What can be the best parameters to selecting your trading system? When selecting your trading system, use these five parameters:
1) The trading system that you select is analytical and not whimsical based on your emotions. Trade entries in the trading system are defined by market price activity, key support and resistance levels, volume and volatility dynamics and not on random and spontaneous decisions.
2) The initial stop loss exit is determined before entering your trade.
3) Trade exits are determined by market price activity, key support and resistance levels, volume and volatility dynamics and fundamental rules, not on any arbitrary dollar loss that you feel comfortable with.
4) Your trading system has been adequately paper traded or live traded and you have determined your personal statistical performance. You need to know your win ratio and the payoff ratio.
Win ratio and the payoff ratios are two number that are personal to you and your trading system. Some traders would like to use the win ratio and the payoff ratio achieved by the other traders. Do not rely on the results that the other got with that trading system. Use the actual results that you attained while using that trading system in calculating your win ratio and the payoff ratio.
Do not try to rely on computer back tested results. Your personal performance results are the real results that matter. You cannot depend on computer results and other traders results.
5) This is very important. Your trading rules should be written out step by step in sequence so that the entries and exits are consistent, clear and above all quantifiable. This makes your trading mechanical and emotions free.
One perfect example of a rule based trading system is the Turtle Trading System. This system was developed for the commodities futures market.
The story of Turtle trading rules is very interesting. The creators of that trading system had a discussion one day. One was of the opinion that great traders are born. The other said great traders can be made.
So a number of completely new traders were selected to teach them those rules and see if they could become successful traders. Many succeeded with this trading system and became highly successful traders. - 29866
Use the results of these paper trades to calculate your win ratio and payoff ratio. These two figures are highly important to know for any trading system. Determine what your personal win ratio and payoff ratio are in using that trading system over time.
Now in the case of a successful trader, it takes three to tango here. The trading system, your money management system and you yourself, all three of you have to gel together. The more profitable you will be over time, the stronger and more developed the relationship is between the three of you.
A trading system is not enough. You need a good money management plan as well. These numbers are required in developing a sound money management plan that will work hand in hand with that trading system. What can be the best parameters to selecting your trading system? When selecting your trading system, use these five parameters:
1) The trading system that you select is analytical and not whimsical based on your emotions. Trade entries in the trading system are defined by market price activity, key support and resistance levels, volume and volatility dynamics and not on random and spontaneous decisions.
2) The initial stop loss exit is determined before entering your trade.
3) Trade exits are determined by market price activity, key support and resistance levels, volume and volatility dynamics and fundamental rules, not on any arbitrary dollar loss that you feel comfortable with.
4) Your trading system has been adequately paper traded or live traded and you have determined your personal statistical performance. You need to know your win ratio and the payoff ratio.
Win ratio and the payoff ratios are two number that are personal to you and your trading system. Some traders would like to use the win ratio and the payoff ratio achieved by the other traders. Do not rely on the results that the other got with that trading system. Use the actual results that you attained while using that trading system in calculating your win ratio and the payoff ratio.
Do not try to rely on computer back tested results. Your personal performance results are the real results that matter. You cannot depend on computer results and other traders results.
5) This is very important. Your trading rules should be written out step by step in sequence so that the entries and exits are consistent, clear and above all quantifiable. This makes your trading mechanical and emotions free.
One perfect example of a rule based trading system is the Turtle Trading System. This system was developed for the commodities futures market.
The story of Turtle trading rules is very interesting. The creators of that trading system had a discussion one day. One was of the opinion that great traders are born. The other said great traders can be made.
So a number of completely new traders were selected to teach them those rules and see if they could become successful traders. Many succeeded with this trading system and became highly successful traders. - 29866
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. Know Forex Charts! Try This 1500 Pips A Day Forex Signal Service!
