Basic Trading System Components
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  1. #1
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    Default Basic Trading System Components

    Basic Trading System Components
    Trading systems are constructed using parameters - the groups of specific rules that generate entry and exit points for any given equity. Both trend-following and countertrend trading systems adhere to four basic principles that govern the construction of any trading system. These principles are also the essential characteristics of an effective system:

    * The system must make money - This is easy to say, but hard to do. Maximizing the percent return should be your primary objective while designing a trading system.

    * The system must be able to limit risks - It's difficult to use a system that fluctuates between extreme highs and lows; not only does it inhibit your ability to liquidate, but it can also be psychologically taxing. Furthermore, by limiting risks, you are able to decrease the effect of a "bad entry" (for example, going long during a downward fluctuation).

    * The system's parameters must be stable and feasible - Trading systems cannot rely on coincidence or luck! The system designer can fulfill this principle of stability by broadening the parameters and not optimizing too much in an effort to increase his or her chances of success. The feasibility of parameters, including 'slippage', is discussed in the second section of this tutorial. Again, it is very important to take slippage into account when designing a system.

    * The system's timeframe must be stable and feasible - For a system's timeframe to be successful, coincidence and luck should not play a factor. Feasibility must also be considered in this instance. If timeframes are set too close together, the resulting amount of trading frequency may not be possible due to software limitations and/or market-side limitations.

    source:

    http://www.investopedia.com/universi...ingsytems3.asp

  2. #2
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    Thanks for this churchille, it seems to be useful.

  3. #3
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    The system must make money - This is easy to say, but hard to do. Maximizing the percent return should be your primary objective while designing a trading system

    I believe that all trading systems make money otherwise, there is no point in having one. However, it is true that this is just easy to say but hard to do. It takes a lot of experience to really learn the skill in trading.

  4. #4
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    Quote Originally Posted by churchille View Post
    * The system must be able to limit risks - It's difficult to use a system that fluctuates between extreme highs and lows; not only does it inhibit your ability to liquidate, but it can also be psychologically taxing. Furthermore, by limiting risks, you are able to decrease the effect of a "bad entry" (for example, going long during a downward fluctuation).
    I think this component is the one most difficult to deal with. It's actually pretty easy to come up with a trading system that makes money. They are a dime a dozen. The good trading system, though, is one you can use without suffering a mental breakdown because of massive swings in equity. There are systems out there that make massive returns, but that are such roller coasters in terms of your equity line that not many traders could reasonably be expected to stay with them.

  5. #5
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    Quote Originally Posted by rhodytrader View Post
    I think this component is the one most difficult to deal with. It's actually pretty easy to come up with a trading system that makes money. They are a dime a dozen. The good trading system, though, is one you can use without suffering a mental breakdown because of massive swings in equity. There are systems out there that make massive returns, but that are such roller coasters in terms of your equity line that not many traders could reasonably be expected to stay with them.
    AGAIN, you nailed it RT. So many people become fixated on the return-return-RETURN! They pay no attention to the draw-downs. They spend hundreds or thousands of dollars on subscriptions to systems that returned 140% "between April 1994 and June 1996", only to blow their entire account after the first ten trades.

  6. #6
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    I have read that many trading indicators work best as filters. That may be something to think about when using a trading system.

  7. #7
    Quote Originally Posted by churchille View Post
    Basic Trading System Components
    Trading systems are constructed using parameters - the groups of specific rules that generate entry and exit points for any given equity. Both trend-following and countertrend trading systems adhere to four basic principles that govern the construction of any trading system. These principles are also the essential characteristics of an effective system:

    * The system must make money - This is easy to say, but hard to do. Maximizing the percent return should be your primary objective while designing a trading system.

    * The system must be able to limit risks - It's difficult to use a system that fluctuates between extreme highs and lows; not only does it inhibit your ability to liquidate, but it can also be psychologically taxing. Furthermore, by limiting risks, you are able to decrease the effect of a "bad entry" (for example, going long during a downward fluctuation).

    * The system's parameters must be stable and feasible - Trading systems cannot rely on coincidence or luck! The system designer can fulfill this principle of stability by broadening the parameters and not optimizing too much in an effort to increase his or her chances of success. The feasibility of parameters, including 'slippage', is discussed in the second section of this tutorial. Again, it is very important to take slippage into account when designing a system.

    * The system's timeframe must be stable and feasible - For a system's timeframe to be successful, coincidence and luck should not play a factor. Feasibility must also be considered in this instance. If timeframes are set too close together, the resulting amount of trading frequency may not be possible due to software limitations and/or market-side limitations.

    source:

    Trading Systems: Designing Your System - Part 2 | Investopedia
    It is quite interesting to learn... Thanks for sharing information regarding forex system components!

  8. #8
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    Limiting risk is definitely a key point. You also want a system that can do all that's been mentioned, and also fit in with your desired lifestyle: some people enjoy watching the screens all day; I prefer to do a smaller number of trades so I can get out and see the daylight!

    best wishes,

    Jon.

  9. #9
    Although commodity is risky but in this market you can earn alot of money. "Where there is risk, there is money".

  10. #10
    Join Date
    Mar 2013
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    All you need is to look at charts like you are playing game

    Then you are going to find secrets that no one told you before
    And then deal with best provider and start making money
    As much as your strategy is simple, you will make more money

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