Creating Trading System

What are the important factors that should be considered when trying to create a trading system. In this article we see how to start creating your own system.

Its long been understood by most and proved by experience that trading is difficult to trade practice, and those who decide to tread the path he should take their bearings in a wide sea of information, and different, many times, controversial. A novice trader is defeated by the panoply of approaches, means trade, and celebrated figures, once opened its first trade magazine. Ready for election, he began looking at online forums, are spins on the advice of his suspicious little more educated or acquaintances into a lead-guru sects that dispense assembly, moderate-price trading wisdom to enter a price for that, never actually Sun taking into account the vital factors on which success hinges each merchant.

Most of the time, the above fast-food approach to every serious business is fraught with failure, and most everyone has a trading account is bound to fail. Why? Due to the nature of trading as a business affairs contrary to what most losing traders looking to easily find their teachers are lionized want to believe and to pay for: there is no standardized solution to become a successful trader available for sale. Just because it's profitable trading critically dependent on one person.

There are millions of people around us and most of them never came through their twins once in their life-cover. And even if some do not wear the same clothes, food on their music tastes and preferences will likely be different. Can a problem all of them with a set of properties that pertain equally to all? As to the trade in question, the "shoe", "link", and that most cherished "album you were listening to half your life now have to be chosen as, if not more carefully.

A trading system is a perfect fit for a trader can easily become open to another. Someone in possession of sufficient capital may be related to the amount of risk that is able to destroy someone with more modest financial resources. Someone trading full time can still watch the market and be better positioned to profit from their colleagues, who occupy trading with another career. Someone who has a large amount of experience can outgun beginner traders in a particular technique and probably should not rely on this one of those who are just trying to get a handle on this approach. Number of factors affecting the vital is very large. Which of these matter most?

Certainly, the two key factors affecting to be addressed and resolved by either the first merchant in turn are risk tolerance and time.

Tolerance of risk as a professional trader trait, providing a basis for critically important part of his trading system, resulting from his psychological profile. Measurement of most variable level of tolerance of risk, the trader simply needs to look at his lifestyle, habits, and psychological characteristics to answer the following questions: Can I be a trader? Do I have enough patience to calmly follow the trend and for how long can I be on it? How am ready to lose? What is the maximum profit that you're not destroy the system of trade, dangerous exposure to excessive risks to me? When all these issues are fairly and adequately respond, the results should be reviewed and analyzed. And it is only a trader, when he sees what can and what can be done by him, that he should get down to composing his trading system. Many successful trader can boast about the realization of this task by years of trading, so make sure you have the answer and analyze major issues before trying his newly created system of practice.

However, it is really necessary to spend time and effort it sometimes looks like getting the stupid test removed from school? Yes, that is, during this time is valuably invest. Those who choose to use foreign systems often lack the discipline essential to follow them and they alone have an understanding of what and why they are actually doing. Often, the desire to improve the acquired system leads to this system of destruction. As shown by experience, most of traders relying purchased or borrowed systems can perhaps meet the conditions imposed by them, for psychological reasons. Sometimes it seems that another system can be used gainfully in all and every trader striving for success must have its own one, created and tested by him and nobody else.

Creating its own system - one right way to Beginner
For a start, he should get hold of the TA book and read the descriptions of all indicators and formulas.

Then he should take a good software, get the indicator that has taken his fancy strategy builder, and be sure to use this indicator alone is useless. After this it is best to ask Strategy Builder to point to the places that buy and sell occurred. Simulation Manager will show equality, efficiency report, and the rest of the necessary information. The next step is to look at the screen and see where and why your favorite indicator did not work. The same procedure should be performed for all indications are reading. Next, select the indicator that seems to suit you the best of those tested were (naturally, its performance does not contain some errors, too) and start the selection of another indicator to correct at least some of the mistakes of the first indicator (illustrative example such tandem is Moving Average - stochastic). As a result, the system should be loaded in the simulation procedure and the Manager to perform the first time should begin again to see what has and where it is not wrong. This cycle should be repeated by adding new indicators begin reducing the number of errors.

However, a point of adding yet another indicator will tell negatively on the efficiency of the system.

There are two possible options: 1) You decide to bring a system, 2) You dump the system and start again. Please note that even if you choose to create a system of pit of your time spent to gain the experience to create trading systems, analysis and reports to learn about the advantages and disadvantages of the indicators are tested. And another thing - try to join just the usual use of indicators in the system but found those of its properties, which are described in the book because the author is not aware of them, or because these properties do not meet the authors the concept of creating a system (to create a system of its own, not copycatting, right?). After 3-12 months of hard work, you will receive proprietary system, a rather simple, to speak the truth.

Certainly, over the road to establishing a commercial trading system has its pros and cons, but by all means, this is the best one for Rookies. To complete the full cycle, the system of merchant must pay to be compared with benchmark systems, from simple ones, such as MA Crossover (if your system is worse, you should think more than likely why you thought your system good) system, developed by professionals, such as wild days volume system described by Jack Schwagger in his famous book, technical analysis or Chuck LeBeau of instability / A Chandelier benchmark. If the results are better you get, you can start real-time trading. If not, should be kept to improve your system.

Principle Against Results
When the merchant does not try to understand the "mystical power" governing the market and its system is only a trend with the price, his life becomes much easier and it makes a bigger profit than as a result of metaphysical research. There is simply following the rule that may have the temptation to react to all the market moves with the help of modern sophisticated scientific methods. This rule is a "trade your money, not the market. Read the details of the trading strategies of the world's best traders. There are many different approaches used by them who seem totally primitive from the viewpoint of mathematics. It seems that many of these successful traders bluff, but it is not so. After all, can you name at least one very successful trader with a good compound return over the past 10 years, which is traded using the methods of the complex?

Simplicity and complexity
With interest and amazement one can often see articles in the press and discussions between supporters of different mathematical approaches that try to answer the basic question of humanity: "How to buy less and sell more?" Basically, trying to solve the problem of finding mathematical interdependencies of market behavior, and is commendable. However, it is quite difficult to agree with this approach seems too complicated and too superficial to be effective in practice. The approach seems to me inefficient because many task to be solved is not clear, therefore, the desired result can be achieved. If the task consists in describing the behavior of the market through the creation of his mathematical model, one can hardly hope for success given that this multi-dimensional process uses only a few integers, but infinitely many variables. Instead, the model is extensive, with significant inaccuracies and, like any other complex system, with high probability of performance failure.

If you want to add this one sidedness of only a mathematical approach and overlook the participation of other sciences, like psychology, economics, sociology, financial analysis, and even the arts, your system will be unviable creation, how to do anything with reality . But if you do not bring the end of the Sciences in play, the result would be unfathomable mess.

If the task is formulated differently, such as obtaining a positive result over a trade more or less prolonged period of time, which means that all the lofty mathematical gobbledygook to do with it? In this case, the task is solved at the level of common sense and basic knowledge of algebra and geometry. Market of natural features such as its ability to move in two directions only, the existence of trends and minimum amplitude of movement within a specified period of time known to all and to provide sufficient preliminary data to build practical and applicable effective methodology for profiting from market fluctuations. However, this can be done even without forecasting or complex mathematical calculations, just to create a system of signals entering and exiting the market. This system will be effective only if the probability of a positive result of each signal is higher than a negative. No need for extensive systems with their trading volume of information impossible to be processed by the human brain, nor is there any need for powerful hardware and the entire system can be controlled by the merchant. A strategy must be responsible for simple questions. Even if you are using advanced mathematical technical analysis method like neural networks, the tasks that need to be made simple. For example, when applying neural networks to a multitude of different factors responsible for future costs, it is much more efficient to evaluate this situation and it could affect future development rather than attempts to determine the exact price that would move in a few days. Instead of forecasting future prices directly, you can use your network to find out if the current trend will continue or whether the direction of the price will likely change.

Requests for significant factors
As to the "weight and significance of the decision-making factors or, in other words, the trade indicators are concerned, the problem is so complicated that no mathematical methodology / expert system / genetic algorithm / neural network can solve the task correctly. If, for example, a set of indicators was established and the neural network is instructed to "weigh" their meaning, the network will continue to do so even when the indicator should not be considered at all because of current market conditions. Formulation of conditions for an indicator of temporary "suspension" of the market is, however, extremely difficult. Experiments have proved that performance "look" in the same direction, very rarely - to about 75% of them several times a year - the rest of the time, one must choose between two painful dozens of indicators based on their "importance". In this respect, if you want to use neural networks should have a set of rules that will define whether or not the neural network out of any use in current market situation. It is true that neural networks can detect subtle, non-linear interdependencies and complex forms no other methods of technical analysis are able to reveal. However, one should have in mind that the neural network (or any other AI techniques) can cover a simple market aspects, and should be used as part of a committee of models and rules, or will be supervised by trader who will decide (as the indicators) whether or not to take the information provided by the networks in mind, and that the networks are more important in the current situation than others.

Universal System
Sooner or later the market begins defending itself against any system by changing its characteristics and the system can become ineffective. Ideal system is a "Holy Grail", a dream that is not destined to come true this dream come true would destroy the very idea of the market, which will be purchased by the owner (or owners) of safety and efficient system, always brings good results, but sooner or later become known to all, and thus, death.

In my opinion, should not regard the market as something driven by a horde of losers and allow those who are smart enough opportunities for profiting from human weaknesses (not a secret that any market gain is somebody else's loss). Rather, the philosophical point of view, every market it seems that no one else from the natural niche in which the strongest one survives.