Do You Have a Trading System?
Not all traders have a trading system or trading plan. Sometimes they buy or sell only based on just ‘guessing’, which isn’t likely going to work out too well for anyone trading in markets over the long run. Sooner or later, they are wiped out of the market, thus are not among the 5% of successful traders. By not having a plan, you are planning to fail. Every successful trader always has a trading system that he uses everytime they trade. The question is, what exactly is the trading system? This article will explain about the trading system.
WHAT IS TRADING SYSTEM?
Let's first take a look at the definition of "system". According to the dictionary, "system" is a set of principles or procedures according to which something is done; an organized scheme or method. For example, chain of fast food restaurants has a single system to run the business. All branches apply the same system, ranging from menus, spices, how to cook, even to the interior of the room. Because profitable, the system is used repeatedly and consistently across all branches.
In the context of trading, the trading system is a collection of trading rules that are organized, and can be applied over and over again. Some traders call this trading system as a trading plan. The meaning is the same.
Trading system is a guide for traders to make financial transactions, in which may be giving them better probability of success.
ELEMENTS OF TRADING SYSTEM
Complete and good trading system has three components in it: Mind, Method, and Money. In shorts, 3M's. This term was popularized by Alexander Elder, author of the book Trading For A Living. He said: “Successful trading depends on the 3M`s – Mind, Method and Money. Beginners focus on analysis, but professionals operate in a three dimensional space. "
- METHOD. This element contains set of rules about trading strategy or trading method, which govern how we enter and exit the market. Trader usually uses Technical Analysis or Fundamental Analysis to create entry rules and exit rules.
- MONEY. This element contains set of rules about how you manage your trading capital. For example how much money is used for trading, how much money needed to add to a position. Ultimately all of these rules aim to manage risk.
- MIND. This element contains set of rules about trading psychology. Traders must aware of their own feelings and the mass psychology of the markets. The main goal is how to maintain stable and solid emotions when trading, not letting fear and greed to harm the trading output.
If you want to succeed in trading, you should have a detailed trading system to increase the likelihood of success. Trading system can guide you to trade well in any market conditions. The question now is, do you already have one?