The Most Important Part of a Trading System

November 21st, 2018

Every week we talk about trading systems.

I love talking about them and hopefully you love reading about them.

But the ultimate question is: how do we pick a system to trade?

First off, if you’re already trading a successful system, that’s fantastic. Please let me know how well you’re doing. Everyone needs a place where he/she can brag, and you can brag to me. I love it.

If you’re not trading a successful system, though, why is that?

Why isn’t your system profitable for you?

It could be that the system simply isn’t a good one. Some traders like action more than they like results. Maybe the system you’re trading is action-packed but not profit-packed.

But I think we all have enough sense to pick a system that;s potentially viable. If that’s the case, why isn’t the system working?

As always, it comes down to trust.

Maybe we have some extra money and we’d like to use a trading system to have our money make money. So we hunt around, looking for a system that will do the job.

We go to websites and webinars and message boards and eventually settle on a system from a stranger.

Maybe we like that system because it promises the profits we want.

So we turn on our new trading robot or start trading our new system and what happens?

We lose a trade.

What happens then?

We start sweating bullets, and we doubt everything about the system we chose.

That guy is a crook. The internet is a bunch of liars. I was so stupid to think it would work.

And we dump our trading system in the garbage.

All because of a losing trade or two.

But what do the successful traders all have in common? In fact, what do all successful people have in common?

The best traders completely trust their systems.

So, if trust is so important, how do we get it?

One way to gain trust is to look at a track record.

We can first look at the past backtesting of the system and then see how have the trades been doing lately. We can see if the actual trades match the promises?

Of course, past results are no indication of future performance, but what’s more reliable than past results?

When we look at a system’s results, we see everything. We see the good and the bad, and we can get comfortable with a system right from the beginning.

Going over a track record is an exercise in trust.

What are the best ways to look at a track record?

If we’re thinking of investing in a huge fund, we can go to accredited websites or even go to the fund’s website. Big funds almost always show their performance.

For in individual system we find online (or somewhere else), we simply need to see the trades. Forex traders tend to like myfxbook.com because that site does its best to show real performance. I find it a little hard to fully understand, and it can be gamed like anything else. Personally, if I see good results from a system on myfxbook, I don’t necessarily believe it (particularly if the results are extraordinarily profitable). But it at least gives us a chance to see some performance.

For the robots that I trade live, I prefer just writing down every trade I get. There’s something powerful about showing every trade result; it build commitment. And it’s the easiest way to see how a system is performing.

I suppose anyone recording each trade’s results could fabricate those results. Anyone can lie about anything, especially online. But, for me, keeping a strict ledger (with occasional screen shots of my actual account balance) is the most accurate way of showing a track record and is the best way for me to trust my systems.

And I’m sure there are other ways to show a track record.

The bottom line is that we need to trust what we trade.

And a track record is a great way to increase trust.

We’ll look more at trustworthy systems this week (if you’re on the email list, you’ll get that information and you can get on the list here).

To see the weekly YouTube video on this system, go here.

Have a great holiday!

Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.