Not having trading systems is a big mistake that a number of traders still make. If you don’t have a personal standard plan or system, there is a chance that you will always conduct trades based only on guesses. Some have succeeded at using instinct or guesswork alone. You are definitely headed for disaster though if you make trades based purely on what you cannot qualify. Luck should never be the sole determinant of your fate.
Bad things can happen when you don’t have a set plan. Other than putting your fate in the hands of luck, the absence of a plan can also make emotional trading far more likely. It becomes easier for you to trade on what is popular simply because you don’t want to be left out. Emotional trading is also marked by holding on or letting go of a trade when you shouldn’t just because you are afraid of suffering losses.
Which trading plan is best? The best system is one that can make you enter and exit trades based solely on logic. Before you can succeed with any plan however, you need to make the personal commitment to stick to your system regardless of how things turn out or regardless of whether you start winning or losing.
It’s not hard to make a promise to yourself. It’s entirely another story to keep it. You will most likely have more courage to keep to a trading plan if you know that it will work. Knowing in advance that you will have a high possibility of success will make making commitments easier for you.
How do you make sure a system will work? The only way is to subject your trading plan to back testing. This technique involves trading using a plan and previous trading data. In short, back testing will let you determine how well a plan would have functioned if it were used in the past.
Manual testing is possible. This however will obviously require a lot of time and effort to perform. Furthermore, this isn’t the easiest option because the data that you will need for testing may not always be available. Instead of manually testing your plan, you can use software instead. Software testing tools can be obtained online. They can come with data services while others are compatible with a number of different data providers. It is recommended that you settle for tools that are compatible with third parties so that you are sure that you have access to specific data that you want.
Going through the process of back testing is only one trading tip. Aside from this step, you also need to keep in mind that you go for a plan that is made just for you. You might be able to benefit from borrowing the principles, steps and tips contained in popular trading systems. In the end however, it is important that you make sure that whatever you choose to follow is in line with your goals, trading style and risk guidelines.
There are some who claim to hold the secrets to the best profitable trading system on earth. Bear in mind though that the real best plan is one that is tailor-made for you.
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