If you are new to trading, you might have heard experienced traders talk about trading systems. What are these? How can they help you to be a better trader?
A trading system comprises of a set of rules that manage your trading activities. Although there are many books and courses about the subject, in the end you are the only one that can draw up the best trading system for yourself. You can read the books, but then you have to take into account your own situation when drawing up your final trading system.
Before even starting to trade with real money, you should first open a demo account at any of the many online brokers offering this facility. Here you can trade to your heart's content with virtual money You can test all your trading strategies and see how they would work under real life conditions.
During the period that you are trading on the demo account, you should already get your trading system in place. Set up all the trading rules and modify them if they don't work in actual trading situations.
Your chosen trading system should not disregard your financial realities. If you are lucky enough to have a million dollars in your account, you can certainly afford larger trades than someone with five hundred dollars in his account. The important thing is that your trading system should unambiguously stipulate how much you are permitted to risk on any single trade. As a rule of thumb this should not be more than between 1 and 5 percent of your trading account.
You should also decide which market you will be trading: stocks, commodities or foreign exchange (forex). Choose one and stick to it. Don't try to be a master of all markets.
Most novice traders think the difficult part is to decide when to enter a trade. Not so. The difficult part is knowing when to let go of a trade. If your trading strategy involves buying when the price moves above the moving average, you can make money regularly if you exit the trade at the right time. If you find yourself unable to let go of losing trades, you are in for a big loss sooner or later. That's why it's important that your trading system should set out under which circumstances you should exit any trade.
You should also clearly state in your trading system what the reward/risk ratio of any trade should be before you enter into it. If you risk a thousand dollars with a trade, but there is reasonable expectation that you can make a million dollars, it's of course a good trade. If a winning trade will only bring you 500 dollars, how you can justify risking a thousand dollars on such a trade?
There are numerous software packages on the market that allow you to back test your trading systems. This means you can import actual historical data and see how your system would have done under those conditions. Never see this as the alpha and omega of trading: it will give you a good indication whether your system can work under real-life circumstances, but it can never guarantee that things will work out exactly the same way in the future. - 32373
A trading system comprises of a set of rules that manage your trading activities. Although there are many books and courses about the subject, in the end you are the only one that can draw up the best trading system for yourself. You can read the books, but then you have to take into account your own situation when drawing up your final trading system.
Before even starting to trade with real money, you should first open a demo account at any of the many online brokers offering this facility. Here you can trade to your heart's content with virtual money You can test all your trading strategies and see how they would work under real life conditions.
During the period that you are trading on the demo account, you should already get your trading system in place. Set up all the trading rules and modify them if they don't work in actual trading situations.
Your chosen trading system should not disregard your financial realities. If you are lucky enough to have a million dollars in your account, you can certainly afford larger trades than someone with five hundred dollars in his account. The important thing is that your trading system should unambiguously stipulate how much you are permitted to risk on any single trade. As a rule of thumb this should not be more than between 1 and 5 percent of your trading account.
You should also decide which market you will be trading: stocks, commodities or foreign exchange (forex). Choose one and stick to it. Don't try to be a master of all markets.
Most novice traders think the difficult part is to decide when to enter a trade. Not so. The difficult part is knowing when to let go of a trade. If your trading strategy involves buying when the price moves above the moving average, you can make money regularly if you exit the trade at the right time. If you find yourself unable to let go of losing trades, you are in for a big loss sooner or later. That's why it's important that your trading system should set out under which circumstances you should exit any trade.
You should also clearly state in your trading system what the reward/risk ratio of any trade should be before you enter into it. If you risk a thousand dollars with a trade, but there is reasonable expectation that you can make a million dollars, it's of course a good trade. If a winning trade will only bring you 500 dollars, how you can justify risking a thousand dollars on such a trade?
There are numerous software packages on the market that allow you to back test your trading systems. This means you can import actual historical data and see how your system would have done under those conditions. Never see this as the alpha and omega of trading: it will give you a good indication whether your system can work under real-life circumstances, but it can never guarantee that things will work out exactly the same way in the future. - 32373
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