The Single Most Important Part Of A Trading System

“I would add that I consider myself and how I do things as a kind of system which, by definition, I always follow” – Ed Seykota

There are many things they don’t tell you when you first enter the markets.  They don’t tell you it will be hard.  They don’t tell you it will take a lot of work.  They don’t tell you that you will find things out about yourself that most people simply don’t want to know. 

If by some stroke of genius, or luck (or both) you get to the stage in your trading and investing where you have created a mechanical set of trading rules, and tested them, there is a-whole-nother world to discover.  Because the single most important part of a trading system is YOU.

Your Part In Your Trading And Investment System

The part your play in your trading system is very large, and often overlooked.  You need to:

  • Be able to follow your trading rules once you have them.
  • Know when to change our rules if necessary, as general conditions change.
  • Know how when to increase your risk per trade, and when to decrease it.

Even If You Have A Tested Trading Plan, It Still Needs YOU To Pull The Trigger

As Ed Seykota says, “The trade manager still has to decide how much risk to accept, which markets to play, and how aggressively to increase and decrease the trading base as a function of equity change.”

These are things that most people do not realise until they’ve been active in the market for at least a year.  How much we risk per trade is just as important as when we enter and exit – our risk being the amount between our entry and our stop loss.  It is wise to get educated about risk management and to put it into your trading plan so you know what to do when the time comes.

And at the end of the day even if there are losses in your account, we need to be able to “pull the trigger” on the next trade (provided you have a tested trading plan of course).  You don’t want to be too afraid of making a loss just as your trading rules turn around into positive territory again.

Looking After You

Keep yourself in good shape mentally – meditate and exercise if you can – it will truly do wonders for your psychology in life and in trading.  Ensure you are comfortable with your risk, and know when to change it if things go bad.  And above all, test, test, and test again your strategy again to ensure it is a right fit for your life, time, and personal psychology make-up. 

Even though most mentors will not tell you to do these things, they will truly help you on your journey to becoming a profitable trader.

Read more on Stock Market trading plans and systems: Ed Seykota’s Magic Trading System and “Everybody Gets What They Want From The Markets”.

What Do You Think?  Share Your Experiences In The Comments Below!

What do you think?  Do you use your gut feel?  Do you use a systemized approach?  Can you affect your trading plan, or has it happened to you?  Share your experiences in the comments below!

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November 11, 2011  Tags: , , ,   Posted in: Articles On Building Wealth

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