Traders perform two types of financial trading: intuitive (spontaneous) and systematic. For all traders (except a few people), the work based on system is much more effective than a spontaneous approach.
Simple intuitiving trading always implies subjective decisions made without system. As a result, it leads to loss. Affect, uncertainty, insatiability and fear work instead of knowledge, sense and become the leading power in your trade. And you will agree that it's very hard to test or verify trade method with no strict rules for decision-making implied, whereas electronic financial trading system provides you of set of rules. Based on these rules, a trader can make decision on opening or closing a certain position.
Compliance with strict but simple financial rules makes trading system objective and excludes emotions. As a result, such trading system allows to reach accuracy, avoid unpleasant surprises, remove psychological stress and finally to make a profit.
The important point of trading systems is a clear and definite set of rules represented by the algorithm, which allows to trade in an objective way without human interference.
1. Terms for entering the market (when, how and at which price position should be opened);
2. Terms for leaving the market under the loss (when, how and at which price unprofitable position should be closed);
3. Terms for leaving the market under the profit (when, how and at what price profitable position should be closed).
It's not always necessary to create a new trading system. Traders have already designed various approaches to market. Variety of trading systems can be found through surfing the web, reading books, articles, forums, etc. Experience shows that every trader needs his/her own trading system according to the interests and desires pursued. Another fact proves it: the system effective for one trader can't satisfy the needs of others. Even if a trader takes somebody else's system, then he/she will definitely change it while trading. And sometimes changes are so serious that only some details remain from the initial version.
Next you will see the methodology for creating your own trading systems. First of all, we'll discuss major principles of trading system design. In the last chapter we will look at the example of trading systems.
It's easy to find similar recommendations through studying researches made by different authors and analyze of problems of trading system design. They can be called the principles of trading system by their right.