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3 Components of a Comprehensive Trading System


One common factor among people who fail in trading is that they lack trade systems. If you don’t have this yet, you may essentially be just floundering around in your chosen investment market. The only way to secure profits and cut losses is to follow a custom blueprint.

Anyone can claim to have guidelines in place. They can still end up losing though if they don’t make sure that their policies are appropriately structured. There are three major components that you should give your undivided attention to.

Trade Entry

This is the point at which you buy a specific security. This is a valuable factor simply because it gets the ball rolling for you. You should not however overanalyze this particular part of your trading plan. Some investors place too much importance on it that they spend an inordinate amount of time scouring over expert reports and tips just to find perfect indicators. The sad fact is that there simply is no perfect entrance.

The best strategy is to take a simple and direct route. You might find it helpful to pick freely available entry rules from known traders and tweak what they do according to your specific preferences. If however, you prefer to devise your own entrance rules, remember to take into considerations such elements as trend, liquidity and volatility.

Money Management

This is the point in your trading system where you set the risk levels that you are comfortable with. With the right policies in place, you have some assurance that you will not end up with losses that are too devastating for you to bear. It is a doubly crucial component because it is one of the very few things that you can successfully control in the highly unpredictable world of investing.

Unlike entries, it is best to create a more custom guide for risk level control. This is because traders do not all have the exact same levels of tolerance for risk. Copying from someone else might still leave you dissatisfied.

Trade Exit

Some trade systems incorporate exit rules with risk management. It is often a good idea though to treat this as a separate chunk altogether. This is because your policies for leaving are really what makes up profit management.

The most significant step in managing your profits is setting your stops. These are what you need to make sure you get the best chance of profiting from your trades. At the same time, stops also make sure that you are able to leave at some point when values start to drop. In other words, exit policies are crucial because they help prevent emotional trading. People who act based on their feelings tend to let go too early or hold on too long. The end result for both incorrect decisions is the loss of profit potential.

A trading plan is what you need the most to make sure you improve your chances of emerging a winner. Although losses are still part of every trader’s life, a good system can protect you from losing too much.

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