What Makes Up A Winning Trading System
Why is a trading plan important? A trading plan is the center of your business. Without a business plan most businesses will be unsuccessful, the exact same philosophy applies to trading plans.
A well defined and executed trading plan will will let you remain flexible whilst being disciplined.
What’s a trading plan?
A good trading plan is a guideline to assist you to make good trading decisions.
It is comprised of two basic parts:
1. Trading system or technique for buy/sell indicators
2. Money management parameters
Developing a trading plan is often very time consuming, because of this, many people tend not to bother. In far too many cases the instant satisfaction of trading simply overwhelms the trader.
A trading plan doesn’t need to be complex, in reality it is often better not to be so.
An example of a minimal trading plan is:
“Buy 1000 share CFDs in Microsoft on open the day after my entry criteria has been met.”
You could possibly follow this every day and never have to think very hard. That is in itself a bonus. It means it is simple to follow and easy to stick to.
Professional trading plans are almost always more complicated than this. Why? Because to trade professionally you have got to be able to convince people to part with their funds. This is of course not always easy!
The sort of questions that a professional will probably be asked when they begin raising money to trade with will include questions like:
1. How will you trade?
2. What type of system will you use?
3. What markets will you trade?
4. Just how much will you risk?
5. Just how much is it possible to lose?
6. What can you realistically expect to make?
7. Just how much are your trading expenses?
8. How will you stop yourself from losing all the money invested?
9. Just how much will you risk at once?
10. What number of markets will you trade?
11. What will be your typical hold time?
12. How will you minimize losses?
These seem like straightforward questions, but be honest with yourself and write the answers down.
Ingredients of a trading plan
Trading plans can be extremely personal things. If one system worked for everybody then the markets would naturally cease to exist, which explains why they do not. A couple of pointers to help you select a trading system include:
1. Forget the “secret” systems, they do not work
2. You might have different systems for a number of markets, stay away from this if possible
3. Your system does not need to be mechanical, many would argue mechanical systems can not work
4. Should have the versatility for being long and short
5. It must have a money management plan that will help you control risk
Perhaps the best advice is to buy something utilized by professionals and figure out how to trade it. Professionals know that the best systems to trade exhibit a few simple characteristics:
1. Possess a positive expectancy of winning
2. Adapt to different markets
3. Have clear entry and exit rules
4. Are not overly optimized
5. Utilize effective capital management rules
These kind of systems are inherently nice to trade as there is a clear understanding that in the long haul they make money. They do however need some effort to learn how to trade them, which tends to discourage many traders.
To discover out how you to build a winning trading plan for CFDs you will need to read our CFD trading handbook. Once you have decided on a trading plan you will need to choose a CFD broker that can help you realize your strategy.
Tags: CFD broker, CFD provider, cfd trading, CFDs, Trading CFDs