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The Components of a Complete System


A  Complete  Trading  System  covers  each  of  the  decisions  required  for  successful
trading:

  •      Markets - What to buy or sell
  •      Position Sizing - How much to buy or sell
  •      Entries - When to buy or sell
  •      Stops - When to get out of a losing position
  •      Exits - When to get out of a winning position 
  •     Tactics - How to buy or sell
Markets – What to buy or sell 
The first decision is what to buy and sell, or essentially, what markets to trade. If you trade too few markets you greatly reduce your chances of getting aboard a trend. At the same time, you don’t want to trade Markets that have too low a trading volume, or that don’t trend well.


Position Sizing – How much to buy or sell 
The decision about how much to buy or sell is absolutely fundamental, and yet is often glossed over or handled improperly by most traders. How  much  to  buy  or  sell  affects  both  diversification  and  money  management. Diversification is an attempt to spread risk across many instruments, and to increase the  opportunity  for  profit  by  increasing  the  opportunities  for  catching  successful trades.  Proper  diversification  requires  making  similar,  if  not  identical  bets  on  many different  instruments.  Money  management  is  really  about  controlling  risk  by  not betting so much that you run out of money before the good trends come. 
How  much  to  buy  or  sell  is  the  single  most  important  aspect  of  trading.  Most beginning traders risk far too much on each trade, and greatly increase their chances of going bust, even if they have an otherwise valid trading style.

Entries – When to buy or sell 
The  decision  of  when  to  buy  or  sell  is  often  called  the  entry  decision.  Automated systems generate entry signals which define the exact price and market conditions to enter the market, whether by buying or selling.

Stops – When to get out of a losing position Traders who do not cut their losses will not be successful in the long term. The most important thing about cutting your losses is to predefine the point where you will get out before you enter a position.

Exits – When to get out of a winning position Many “trading systems” that are sold as complete trading systems do not specifically address the exit of winning positions. Yet the question of when to get out of a winning position is crucial to the profitability of the system. Any trading system that does not address the exit of winning positions is not a Complete Trading System.

Tactics – How to buy or sell Once a signal has been generated, tactical considerations regarding the mechanics of execution become important. This is especially true for larger accounts, where the entry and  exit  of  positions  can  result  in  significant  adverse  price  movement,  or  market impact.

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