Here are ten things your trading system must do:

  1. A trading system must beat buy and hold in your market by returns and/or in less drawdowns to be a viable method. There is no point in actively trading a system that can be beat by simply buying and holding a market.
  2. Create a diversified watch list for more opportunities for signals and to capture trends.
  3. Your system must perform well in all types of markets, range bound, up trends, and down trends. This is defined by big profits, small profits, or even small drawdowns in capital.
  4. Create a potential profit margin through backtesting of your signals.
  5. Create the opportunity of big wins or small losses by leaving the upside profit potential open while capping the potential for loss.
  6. Eliminate the risk of ruin through proper position sizing and wining percent. A 50% drawdown could be considered by most as ruin as you need a 100% gain to just get back to even.
  7. A system must have a built in position sizing method for money management to limit drawdowns.
  8. Can your system survive an extreme market event like 1929, Black Monday 1987, or the fall of 2008?
  9. Do the markets you want to trade have enough liquidity to trade with the size you need without wide bid/ask spreads?
  10. The best trading system for you is one that fits your personality and risk tolerance and you are able to trade long term with discipline.