Three Keys to a Winning System

You are here because you have a passion to trade and you have a passion to win in trading. If you are looking for an accurate and highly profitable winning trading system or you are looking for a system to confirm the signals generated by your existing trading decision-making tools, you need to be aware of these important criteria in selecting the right trading decision-making system.

The ability to back-test SYSTEM STRATEGIES against recent historic data is the number one must-have feature in a winning system.

It is hard to imagine that someone is trading in the market with signals that cannot be proven against the recent historic data. What will be the likelihood to win in trading if the signals and strategies have been losing with the recent historic data?

Where do you get your confidence that the signals and strategies are worth following? Why are you trading with your hard-earned money on unproven, potentially money-loss signals? No matter how fancy the system looks with bells and whistles, it is actually worthless or even detrimental to your trading. Please also note that the word "back-testing" sometime is misused. Some software only offer a simple prediction for the next one or two bar(s). The "back-testing" results that software offers are basically showing the so-call accuracy of a BAR-LEVEL prediction algorithm. It has absolutely nothing to do with the real trade that typically will cover a period of many bars. You could have high accuracy of bar-level prediction, but still end up losing money because you don't have trade level back-testing and winning strategies.

The system's ability to help you manage the trade along every step of the way is the number two must-have feature in a winning system.

The system should give you specific and executable signals and strategies way before you create a trading position or when you are ready to create a trading position. The system should offer values for the initial stops so that you know your initial risks before you create the position and you will be able to place initial stop orders right after you create the trading position. Most software systems out there are not able to offer this level of detail. Some of the software vendors just vaguely give some suggestions like using a fixed percentage of the symbol value in trading or fixed dollar amount as the initial stops. Back testing results show that those strategies never work. Once you are holding a trading position, you need to have timely information as where and when to move your trailing stops. The strategy to update your trailing stop orders along the direction of the trend is the only way to be certain that you will hold your winning position during the full thrust of the trend and you will win big.

You also need specific exit stop values to maximize your profit and minimize the profit giveback. Please note that during the trading, traders are under big pressure before and during a trade. Psychologically, traders are actually very vulnerable before and during a trade. Most of the time, there are many things going through a trader's mind during the decision-making process and much pressure built-up before and during a trade, without a winning, specific, precise, easy-to-follow and executable plan for the trade. It is very easy for traders to make mistake after mistake in this high-pressure and nervous mental state. That is exactly why you need unambiguous and actionable buy/sell/stop signals for your trading position bar-by-bar and minute-by-minute. This is the only way for you to have a chance to become a disciplined trader and this is the only way for you to have a chance to win in trading. Anything less than this level of detail is sure to lead to failure.

Another very important criteria to help you in selecting a winning decision-making system is its robustness.

The system and strategies you select and implement should be sound and effective constantly and should help you to win again and again so you can make money in both bull markets and bear markets, or any market in between. The winning system should have no dependency on any particular market or any particular interval. It should show the same effectiveness in all the markets and all the intervals. It is called "universal". Universal-ness is an important indication that the underlying algorithm of the system is engaging with the fundamental nature of the market movement and it is not fine-tuned or curve-fitted to a specific market or interval to just make the results look great.

Curve-fitting is very dangerous for a decision-making system because it eventually breaks down and you will lose money. So it is imperative to select a decision-making system that is universal for all markets, all intervals and all trading styles.