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.
- You have to chose if your system will be profitable from a high win rate or big wins and small losses.
- 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.
- 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.
- 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.
- What will be your swing trade signals? Resistance, support, MACD, Stochastics, or RSI?
- What will be your position size per trade?
- How will you manage your trade size in relation to volatility?
- Risk no more than 1% of total trading capital per trade.
- How much open risk will your positions expose you to? 3% max is a good parameter.
- What markets will you trade and how will you prioritize your entry signals?
