Creating a winning trading system suitable to your needs, that can react to the situation of any market means you are able to take your trading to the next level. Here are some pointers that have been invaluable during my time trading . . .
The best trading systems have only one market to trade in. Real money is made by mastering your chosen market. Many traders fall into the trap of thinking the more they trade, the more money they will make. Unfortunately, this does not hold true.
This next strategy is over-looked by almost every trader. However, it is one of the most critical points to your success. You should back test your system. Back testing a system involves applying the rules and conditions of the best trading systems to historical data. With back testing you can determine how profitable your system can be, and predict its win/loss ratio. These numbers will not be 100% accurate, as price movements in the past are never repeated perfectly. However, you can assume that similar patterns and trends will occur over time, giving you invaluable insight into how the best trading systems will perform.
I call it a “secret” because few people seem to understand it, including many people who have written books on the topic. Some people call it risk control, diversification, or how to “wisely” invest your money. However, the money management formula that is the key to top trading and investing is simply referred to as the algorithm.
For my last point, let me draw some parallels between running a business and trading. Most successful businesses keep statistics on everything from their conversion rate to their average dollar sale. The reason a successful business does this is to create a scorecard of where they are right now. They understand you first must keep score before you can begin to improve that score. Trading is exactly the same.
With a back tested, robust and best trading systems you can possibly have in your hands, and a good understanding of money management and the market, you will maximize your trading potential. Once you`ve applied these techniques, you will be surprised at how profitable the best trading systems you designed will become. Enjoy your success.