While trading systems have to be built for an individuals risk tolerance and personality type the principles used to build trading systems are basically the same . Here are the 10 key universal elements to successful trading system development.

  1. You have to chose if your system will be profitable from a high win rate or big wins and small losses.
  2. You must eliminate the possibility of large losses in your trading system through the following risk management tools: stop losses, option contracts, futures contracts, and position sizing.
  3. You have to chose if your trading system will be one that follows the trend or trades price swings. You can have multiple systems in one account.
  4. What will be your signals for capturing trends? Breakouts, moving averages, high or low price in a set number of days, or all tine highs or all time lows.
  5. What will be your swing trade signals? Resistance, support, MACD, Stochastics, or RSI?
  6. What will be your position size per trade?
  7. How will you manage your trade size in relation to volatility?
  8. Risk no more than 1% of total trading capital per trade.
  9. How much open risk will your positions expose you to? 3% max is a good parameter.
  10. What markets will you trade and how will you prioritize your entry signals?

By Steve Burns

After a lifelong fascination with financial markets, Steve began investing in 1993 and trading his accounts in 1995. It was love at first trade. After more than 30 successful years in the markets, Steve now dedicates his time to helping traders improve their psychology and profitability. New Trader U offers an extensive blog resource with more than 4,000 original articles, online courses, and best-selling books covering various topics.