Whilst there are millions of dollars to be made, the fact is that over 90% of traders lose money in the markets.  This statistic has been fairly constant over time, although traders now have access to institutional grade data feeds and lower trading costs.  Successful traders have the tendency to trade systems or adopt trading styles that reflect who they are.  Because they are comfortable with the system or style, they don’t second guess it, ignore signals or give up after a few losing trades.

This article is about factors to consider when buying or developing a system so that it works for you.

Firstly, your trading system must be usable with the amount of capital you have.  If your system requires you to buy and sell hundreds of contracts, but you only have $10,000 in trading capital, it will not be tradeable.

If you have a small amount of trading capital, you will need a system with minimal drawdowns, because you won’t be able to withstand losses while waiting for a big win in the same way as someone who is trading with $10m in their account.  The smaller the amount of capital you can allocate, the less likely you are to succeed.  Your capital should be risk money, not your retirement nest-egg or money you need to live.

Paradoxically, some traders start off with a huge amount of money, and trade wildly and lose a fortune.  The optimum is where you have enough to withstand a string of losses.  You will need enough to perhaps risk 1-1.5% of total capital per trade whilst setting your stop loss point far enough away from the market to avoid getting stopped out by market noise.

You need to consider your personality.  Are you a risk taker who likes to trade aggressively, or are you quite risk averse?  When you hold a position, are you relaxed or tense?  If you are a conservative, risk averse trader, you need a system that reflects your need for low risk, even if this means that you forgo the larger profits from a more aggressive system.

How much time can you devote to trading?  If you have a full time job, your boss will probably be unhappy if you constantly monitor the markets at work.  You will need a system that allows you to trade in the evenings, or take longer term trades.  The Forex Cash Cow strategy (covered in other postings) is suitable in this case.

The trading system you choose should support your trading goals, and realistically reflect your own personality and trading resources.  If you can find an off the shelf system that works, that is great, but otherwise, build a system for yourself that meets your own needs.

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Tags: trading system, trading system development

This entry was posted on Thursday, April 3rd, 2008 at 1:41 pm and is filed under Trading Systems. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.