Why use a Trading System?
Trading systems allow a trader to diversify their approach in the markets. Many system traders are active in the futures markets already. Perhaps they do their own research and take several trades a month over a variety of markets.
Systems will allow you to diversify your futures investment with a different approach. Maybe you position trade and want to diversify with a day trading program.
System trading also allows a trader to have a rigid approach. The system will trade with the same inputs at all times; it has no room for emotions or fundamentals. It focuses first on price and then makes decisions from price.
Before selecting a system it is important to look at a few key items
- Does the system profit in all market conditions, bull and bear markets.
- Does the performance history deduct slippage, commissions and system fees?
- Can you stick with the system mentally?
Does the system profit in all market conditions
Don't fall hazard to selecting a system that profits only in a bull or bear market. You want an approach that will allow the greatest flexibility - the ability to profit in up or down markets. Markets never move in one direction all of the time. Having an approach that allows profit in up and down markets gives more ability to profit.
Does the performance history deduct slippage, commission and system fees?
Proper evaluation of a system is very important. Make sure the performance history deducts all trade costs. This will give you the most accurate picture possible. Trade costs happen in real trading, make sure your performance history adequately prepares you for them.
Can you stick with the system mentally?
Now that you found the perfect trading system you are ready to trade right? Wrong. Take a look at the performance history. If possible view the record on a trade by trade basis. Can you emotionally take the ups and downs of the system? You need to be prepared for swings in the market - they happen, and feel worse when its your own money at risk.
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