Choosing the best trading system
Selecting the best trading system from vendors trying to sell you something can be like choosing which bottle of poison to drink. It may be ok, but any one of them could kill you.
It does not matter whether you want to trade the stockmarket, futures, commodities or forex, the best system is probably not one that you can buy...
The best trading system is one that fits
YOUR personality, objectives & beliefs
It is the one meets your own personal objectives, fit your beliefs about the market and fit your schedule and routine.You will probably have to build this yourself.
Let’s examine why I believe this is the case…
Attributes of the best trading system:
Before you worry about the choice between buying or building a trading system, let’s look at the characteristics that are important in the best possible trading system for you. In my experience, this is one that…:
- …fits your personality and work preferences
- …fits your beliefs about the market
- …is based on a sound trading strategy
- …you understand so you don’t lose faith during a drawdown
- …you trust so you can take all trading signals
- …has a positive expectancy
- …you can trade with the amount of risk capital you have available
- …generates positive average profit per trade after slippage and commissions
- …has a narrow distribution of trade outcomes relative to average profit per trade
- …generates enough trades to make meaningful profit
- …does not generate so many trades that you can’t take or prioritize them
- …is explained in your detailed trading plan
- …defines clearly when to enter and exit the market
- …has been correctly optimized without curve fitting
- …is a robust trading system and consistently profitable over time
- …avoids market conditions in which it doesn’t work
- …responds well to creative position sizing strategies
- …can fit into your daily routine
- …does not require you to monitor the markets all day (unless you really want to)
- …generates the most profit after all of the above are satisfied
If you are already using a trading system and are not happy with your performance, or you are feeling stress / anxiety or any other negative emotions about your trading, I would encourage you to evaluate your trading system against the criteria above. If your system does not tick at least most of the boxes then you probably do not have the best trading system for you…on the other hand, if it does – congratulations! You are one of the few system traders who have already found the best possible trading system for them.
How do I find the best possible trading system for me?
Regardless of whether you are going to ultimately buy or build a trading system, the process for finding the trading system that is best for you must start with the same 3 steps:
- Learn the language and understand the basics of trading systems
- Establish a compelling reason to trade and document your objectives
- Select a trading strategy that matches your personality and beliefs
If you do not start with these three things, whatever trading system you buy / build will never be your best trading system because you will not be able to trade it consistently and without mistakes.
A Black Box system will never be
consistent with your market beliefs
If you really believe you can buy a trading system that meets all the attributes of the best trading system listed above, then you should do this only after completing these 3 steps, which are the first of 10 steps in the Trading System Life! learning process.
In order to satisfy all of the above attributes, the vendor will need to fully disclose all rules of the trading system to you. If you are trading a ‘black box’ system there is no way to know if the system is consistent with your beliefs and personality until it is too late. I strongly recommend you avoid ‘black box’ (undisclosed) trading systems and newsletters because when things go bad, you have no way to know whether the system is broken or if the losses are temporary.
Building your own ‘best trading system’:
If, like me, you don’t believe that you can satisfy all the required attributes by purchasing one off the shelf, then you are going to have to build your own.
The Trading System Life! 10 step learning process that I use personally and with my coaching clients for developing their own respective best system. The process is the same whether you want to trade the stockmarket, futures, commodities or forex. This process is illustrated below:
Used correctly, this process will help ensure you trading system development work results in the best trading system for you.
Conclusion:
Many people searching for the 'best trading system' may in fact be looking for the best system they can buy... But this is not the same thing at all. The best system you can buy is unlikely to be the best trading system for you because it was not designed with your personal preferences, beliefs and objectives in mind.
Only you can design a trading system with your personal preferences, beliefs and objectives in mind. This is why we developed the Trading System Life! process to take traders from novice to active system traders by building their own trading system.
If you feel that you may require some form of support to work through the Trading System Life! 10 step learning process please feel free to contact us.
Related Articles:
Main Page: What are stock trading systems and how do they work?
- Trading System Development - The Right Way
- Mechanical trading systems save you from yourself!
- What makes a good trading system?
- Choosing the best trading system
- Trend Following System Components
- Penny Stock Trading Systems - Benefits and Pitfalls
- Trading Signal Beliefs - Example System
- Should I consider paper trading before using real money?
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