What are the parts of a perfect trading system?

Now more and more people are discussing the issue of the trading system, and most of the voices given by the market are investment strategies, risk management or position management and so on.

If you are given 1 million funds, and you are required to achieve a stable profit after one year, what investment plan should you adopt?

Then all the measures you think of can be put into action, we call it a trading system as a whole.

Step 1: You need to study the "trend characteristics" of the investment market, such as the trend characteristics of major trends and local K-line patterns. Many people analyze the market through technical indicators, naked K, wave theory and other measures, and summarize the market trend according to their own system, so as to deduce the trend direction with high probability in the future. Here I advise everyone not to try to find a super indicator that can cover all trading opportunities. Generally speaking, to comprehensively summarize the trend characteristics of the market requires several sets of indicators with different attributes, otherwise a lot of experience and time will be wasted .

Step 2: When you have a certain understanding of the morphological characteristics of this market, and have summed up a prediction model with a high probability. It can be summarized as a trading opportunity. Generally speaking, as long as this kind of trading opportunity appears, there is a high probability of a rise or fall, and a certain rise or fall is guaranteed. Because we always do transactions around the correct rate and winning rate to do dynamic balance. Sometimes there is a model with a high correct rate, but the profit rate is very low, or if it is wrong, it will suffer serious losses. For example, similar trading models such as Martin Grid need to be vigilant.

Step 3, risk management is divided into three parts to consider. The first is how much risk you can bear for each order, and don’t exceed how much continuous losses. Continuous losses may be due to your poor state at the time, or it may be It is the current market trend, which does not conform to your trading model. You need to pause or find an opportunity where your trading opportunity matches the market. The last one is how much the total loss is, then our investment model is a failure, then you need to stop in time at this time, keep the remaining principal and then consider the first or second step.

Step 4, position management can be divided into two parts, one is daily position management, for example, when a trading signal is not very certain, then you can clear 1/3 of the position, when a trading opportunity has multiple signals When confirmed, then even two standard positions can enter the market. This method can make up for the shortcomings of technical means and the lack of market trends. The second part of position management is the overall position management. For example, you can divide the funds into three parts. The first part is for investment in the first quarter, and the second part is for investment time allocation in the second quarter. If your investment model is effective, then It is impossible to suffer losses in most of the 12 months of the year. On the contrary, the more correct the investment philosophy, it will be confirmed most of the time, and the losses will be lost in a small part of the time. After a comprehensive assessment, we can make money. Variety classification can also be done. For example, I do gold and crude oil stock indexes, and match positions by splitting risks across multiple varieties. Then you can also make a distinction according to your investment method. Because only relying on a technical means, such as a MACD indicator, is far from allowing us to make steady profits. It needs to make up for the defects of the technology itself through various measures such as position allocation and opportunity allocation.

After you have gone through 4 such steps, you have to summarize with practice feedback, test your own trading system, where there are deficiencies and where you can improve, then do repairs, and then do practice to get confirmation, and repeat this way, then your trading The system will be perfected, so as to achieve a state of confidence and stability.

If you are interested in building the system, let's discuss it together. Friendly and harmonious exchanges are welcome.

    A complete trading system contains a lot of content. Sleeper has already talked about it in detail in the previous article. Here we just list the concepts of the trading system in the form of titles for summary.

 1. Trading Philosophy

      1.1 Predictive analysis or quantitative analysis?

      1.2 Risk priority or profit priority?

      1.3 High risk high return or stable rate of return?

      1.4 Mechanical trading or intuitive trading?

      1.5 Strict stop loss or carry orders and other reversals?

      1.6​Is it the win rate or the profit-loss ratio?

      1.7 Is it long-term or short-term?

      1.8 Should I study first or do it directly?

      1.9······​

  2. Trading system

      2.1 Market Analysis

          2.1.1 Non-technical analysis means

          2.1.2 Fundamental analysis methods

          2.1.3​Chart analysis means

      2.2 Fund Management

          2.2.1 Calculation of stop loss amount

          2.2.2 Calculation of stop loss points

          2.2.3 Position Calculation

          2.2.4 Adding positions and adding positions​

          2.2.5 Fund use plan​

      2.3 Trading Psychology Training​

          ​2.3.1 Make changes

          2.3.2 Plan profit target

2.3.3 Planning the bottom line of losses

2.3.4 Focus on your transaction

          2.3.5 Reflect on your trading

          2.3.6 Change your world view

          2.3.7 Self-affirmation​

  3. Transaction Execution

      3.1 Trading Plan

          3.1.1 Technical preparation, what kind of indicators are you going to use to analyze the market, don’t temporarily look for indicators to support your ideas during trading

          3.1.2 Fund preparation, how much money you have in your account, and how much risk you can bear

          3.1.3 Time preparation, during your estimated trading time period, are there any other things that must be done that may distract your energy?

          3.1.2 Market analysis of trading varieties​, determine the pressure and support level, and give the possible space for market development

          3.1.3 Trading variety selection plan to find out the most beneficial variety for the current transaction​

          3.1.4 Entry and exit signals

          3.1.5 Profit and stop loss plan, use the two conditions of stop loss points and holding time to set the stop loss plan

          3.1.6 Position plan

          3.1.7 The transaction termination condition, regardless of whether you win or lose, you must exit immediately when this condition is reached​

3.2 Trading Discipline

          3.2.1 Discipline of entry and exit, do not open an order without a clear signal, and do not stop making a profit

          3.2.2 Position discipline, the position calculated according to your risk tolerance cannot be changed

          3.2.3 Stop loss discipline, stop loss must be set, and stop loss must be strictly enforced​

      3.3 Review summary​

          3.3.1 Technical summary, refining technical level

          3.3.2 Mentality summary, exercise trading psychology​

Developed for many years, from the initial C++, delphi, php, js, python, to AI now. In the end, I chose to quantify into the pit to draw a successful conclusion to my technical career, or it may be an ellipsis.

A complete quantitative trading system includes the following parts:

This picture looks simple, but apart from the execution module, every other module can be disassembled, and a book can be written, or there may be more than one. Here we can only briefly explain the macro concept.

Strategy model: The strategy model can be said to be the core part of the entire quantitative model, which determines the profitability of the entire quantitative model. The strategy model is mainly divided into two directions: one is based on technical aspects, and the other is based on fundamental aspects. The technical level refers to the combination strategy of various technical indicators plus forms, such as KDJ, MACD, etc. Fundamentals are mainly based on the company's financial data and some data indicators obtained after analysis, such as: PE (price-earnings ratio), sustainable growth rate, etc. Since there are too many technical and fundamental indicators, cooperation can produce N kinds of combinations, and the profit effects of different combinations are different. Therefore, in the strategy part, all quantified people should exhaust what they pursue throughout their lives.

Risk Model: Improve the profitability of quantitative models through risk control. How to improve? To put it bluntly, it is to avoid losses. The risk model mainly includes: data error, individual stock risk, market risk and other internal risks, and external risks are generally not considered.

Transaction cost model: The strategy model is to make profits, the risk model is to avoid losses, and the transaction cost model is to control costs to maximize the profit of the entire quantitative model.

Portfolio construction model: Portfolio construction model is to build a portfolio that can create maximum profit.

Position management model: Position management, simply put, is the problem of buying more and buying less. Cooperate with the risk model to dynamically adjust positions.

Execution model: see the signal and operate.

1. Build a system: build a trading system with positive expectations

We all know traders who don't have a system, they trade by feeling when they trade. You ask them why they are long or short at this price, and the answer is always one reason today, and another reason tomorrow, with no consistency; what's worse, some people still have a blank look-they just feel that it is going to rise or go up. fell...

The funds of traders without a system are like a mob. No matter how strong their funds are, they will be short-lived. It is only a matter of time.

Systematic traders, on the other hand, have some rules when trading. Although they may not be able to make long-term stable profits, at least they have a consistent basis for entering and exiting the market.

So what is a trading system with positive expected value?

The so-called positive expected value trading system is a trading system that obtains a positive result after trading according to the system rules for a relatively long period of time.

In other words, it is a trading system that has been proven to be stable and profitable.

So how can we build such a trading system with positive expectations? Two ways:

1) Learn from someone close to you or someone you know--surely someone who has achieved success in this area and is willing to teach you.

That is, this person is willing to teach you his trading system with positive expected value without reservation. This requires background, luck, fate, etc., which cannot be met.

But this is a "shortcut".

2) Build it yourself. Since there is no such "master", then everything can only depend on oneself.

But this is destined to be a road full of hardships and bumps. And the process may take a lot longer than you think.

There are many ways to make a profit in trading, but countless people who use the same method to trade and lose money.

Whether it is fundamental analysis or technical analysis, a system that can make long-term stable profits must include but not limited to the following three elements:

* A set of methods. This set of methods is a tool for evaluating when to enter, exit and increase or decrease positions.

* risk control. Various unexpected situations will inevitably occur during trading, and countermeasures must be taken to minimize risks in time.

* Money management. It must be very clear what is the proportion of funds in a single trading position and what is the proportion of funds in a total position. These must be designed and allocated before the transaction. Good money management can help you survive in this market longer.

When you have built these elements, the next step is to continuously test, verify, and then polish it into a profitable system through continuous trial and error.

As for how to polish it, it depends on the method you choose and your personality. No one can do it for you, you can only rely on yourself.

This process must have been accompanied by great pain and frustration...

Until one day, you finally built this trading system. If you compare the trading system to a car, then congratulations, you have built yourself a sports car with superior performance, and you can drive it in dangerous situations. financial markets.

2. Formulate principles

You may be thinking, can't I start the money printing machine now and collect money lying down? Then you are thinking too much.

Even if you have the "Dragon Slaying Knife", you may not be able to become a martial arts master.

Although you have built yourself a sports car that is much better than others, but think about it, in your daily life, can you drive this sports car on a rampage and run amok? By the way, no. You have to abide by the traffic rules, otherwise it will be difficult to guarantee that you will not be killed in a car crash!

So in trading, even if you have a good system, you must also formulate trading principles. Trading with a system and no principles is not much better than having no system.

Kant said: "Man makes laws for nature".

You also have to legislate for the market .

Just like the important role of the constitution in ensuring the stability and long-term stability of the country and society, your trading principles are the "constitution" of your trading system.

This "constitution" is generated in conjunction with your trading system, it is the foundation of your trading system, and it is the fortress for your survival in this so-called "the most difficult industry in the world".

In fact, you have already generated certain principles while building the system, but these principles are not specific enough and comprehensive enough.

Now it is a comprehensive formulation of principles at the strategic level. For each position you trade, under what circumstances you can enter the market, under what circumstances you must exit the market, under what circumstances you cannot enter the market, under what circumstances you need to reduce your position, etc.; clearly formulate the principles in all aspects, the more specific and more accurate you are. The clearer the better.

When we review the market, we always feel that the market is so clear at a glance; but at the moment, the market is always changing, and we always feel specious and ambiguous, don’t we?

Through trading principles, a lot of market noise can be eliminated and the trading winning rate can be improved.

Emotions also often influence our behavior. Think back, how much loss, loneliness and pain have you endured wandering alone between heaven and hell? How many sleepless nights have you passed? In the depression and anger again and again, the transaction is made worse...

Trading principles can also eliminate emotional interference and make transactions more rational.

When you have formulated a comprehensive trading principle, you will find that the frequency of your trading has become lower, which is a good thing-the door to wealth has been opened to you!

The trading system must have indispensable, entry and exit theory, stop loss theory, and fund management! ! These few are indispensable! !

Give the simplest Bollinger Bands trading system! Breaking through the middle rail or standing firmly in the middle is the entry point, and the stop loss is below the middle rail! Of course, it is impossible to determine the signal with a single Bollinger band, adding moving averages, MACD, RSi, so it can be better! The actual operation depends on the individual's understanding of the market!

Entry, exit, stop loss, fund management, this must have strong theoretical support, relying on Mongolia will never be able to build its own trading system!

1. What is a trading system

What is a trading system? From a simple concept, the trading system is the three-dimensionalization of systematic trading thinking. Systematic trading thinking is a concept, which is reflected in the overall observation of price movement and continuous observation in time in market judgment and analysis, and in the decision-making characteristics of the transaction object, transaction capital and transaction investors. The comprehensive embodiment of the three elements.

Whether you are a novice or a veteran, you always use a variety of different methods, systems, and strategies to earn profits by speculating on product price fluctuations. Every investor claims that his means are the best. But in fact, each trading system has its strengths and weaknesses. The key to winning the speculative market lies in. Develop a concise trading system. Strictly abide by the trading rules. Control your emotions.

(1) Classification of trading systems

Typically traders choose to use two trading systems. A price following system B price predictive system. Let's briefly introduce them.

1. price following system

Follow the trend of the market through momentum indicators, oscillators, and averaging methods. The easiest thing to do is to find a suitable moving average and trade in the direction it points. Other indicators can also be added, such as MACD, stochastic indicators, RSI, Boolean channels, etc. A chart can have 29 unused technical indicators, and countless collocation and collaborative analysis methods. Coupled with 20 different time frames (year, month, week, day, hour, minute, etc.), it's no wonder that some traders who don't know how to do this will do analysis in front of the screen for 12 hours and dare not take a position. The key to avoiding "analysis paralysis" is to keep things simple, choose the time frame you want to work on, choose an analysis combination of two or three indicators, this system also includes trend lines. Once your trading system gives a trading signal, let it go with confidence.

2. price predictive system

Generally, it is a long-term system, which is applied to trading sessions, antennas or longer. He consists of predicting the movement of the entire currency pair over a longer time frame, then taking in on dips and distributing on rallies. Horizontal lines, trend lines, golden section lines, and moving averages are some commonly used indicators. These indicators can determine the direction of the transaction, determine the appropriate entry level, determine the appropriate exit position, and the rest is left to the trading software, and you can be busy with other things. This form of trading requires investors to have certain experience and skills. Fortunately, these can be gradually learned in actual trading.

(2) Disadvantages of the trading system

Price-following systems are often short-term "scalping" trading systems that require investors to watch the market every day in front of the screen. The investment time span of price predictive systems is generally 8 hours to a few days, and investors do not need to follow up all the time trend. Everyone has their own preferences, but in my experience, the average investor can't afford to stare at the market for a long time.

The price forecast system is often an interpretation of the company's future performance. Although the domestic market has gone through more than ten years, compared with mature foreign markets, it is just a baby that has just been born, and there are many uncertainties. There are also many traps, and completely copying the foreign advanced market evaluation system will mostly cause the risk of one's own position.

Therefore, the establishment of your own trading system must conform to the market environment, so that there will be no embarrassing situations. At the same time, your trading system must also be upgraded according to the mature pace of the market, so that it can conform to the trend of the market and become a real trading system. Efficient trading system combining concept + actual combat.

2. A relatively complete trading system includes

1: Investment variety selection strategy.

2: Judging the trend and long-short strategy.

3: Trading strategy for selection of entry and exit points.

4: Fund management strategy (including position management and risk control).

5: The setting strategy of take profit and stop loss.

6: Coping strategies for emergencies.

3. A perfect operating system must have three aspects: environmental judgment - risk control - trading skills.

1. Environmental judgment is actually market trend judgment. Only a safe market can create miraculous profits. Why do you say that?

Let’s take a look at an example, the widely recognized rubbish indicator kdj, if it is tested under the condition of 10% in 20 days, its success rate is less than 30%, that is to say, you fail 7 times out of 10 operations, even if an expert can do it 5 times. % stop loss, your profit and loss will add up to a large loss in the end. But let's add a condition "when the market is in the market", and then use the above conditions to test, you will be surprised to find that the widely recognized garbage indicator kdj has a success rate of more than 70%. What is this indicating? However, during the upward trend on September 14, 2004, the success rate of KDJ's stock selection reached 100% for the first time. From the above cause and effect, I got an idea that a safe market can create unlimited profits. But the real stock selection method is very secondary. Everyone has been obsessed with the stock selection method and caught the dark horse. In fact, they only caught the not very important things. In fact, stock selection is very simple. Add another condition to my above conditions and you will find that every time you grab leading stocks, isn’t it strange?

2. Risk control

The so-called risk control, we should admit that even the best market will have a callback, that is, it has certain risks. How to control risk is the most important part of the entire trading system. Regardless of whether the market is rising or falling, it is always spiraling forward, and there are many fluctuations in the middle. How to judge which fluctuation is the real starting point of the market? Various uncertain factors make most people lose the best opportunity to intervene. In fact, after 10 years of experience, I personally found that "a market will first have a leading stock that continues to rise. When you fluctuate, you find that there are no leading stocks or leading sectors that are long, then this so-called market is at best a rebound. What rules are needed in practice?

3. Trading skills

As we said earlier, trading skills are not the most important link, but it is related to our profitability after all. Only on the basis of fully satisfying the above two aspects, you can develop a stock selection plan with a high success rate can be hopeless and unfavorable.

A perfect trading system includes (1) entry position (2) position management, a single transaction loss of 10,000 US dollars account 1%-2% (3) stop loss position, stop loss is risk management, according to the entry position and stop loss The distance from the single loss of the position is determined to be 1%-2% of the account (4) the stop profit must be 1:1, 1:2 or higher than the "5" profit-loss ratio "6" to reduce the position and push the protection

1. Determine the direction

2. Position opening signal

3. Open position, stop loss position

4. Exit strategy (leaving at a loss, never waiting for a stop loss, and leaving with a profit)

5. How to tighten the stop loss and collect profits in the process of holding positions.

My system is to perfect these five points one by one. The core is to master the two points of winning rate and odds, and the focus is on execution. Of course, you still need to have tests. Trading is a profession that requires toughness, patience and other comprehensive qualities.

Provide you with a logical thinking list for building a trading system for your reference, and you can communicate with each other if you have any questions!

In my opinion, a relatively complete trading system should include three sections: before the transaction, during the transaction, and after the transaction. Here are some ideas for building my own system:

1. Before the transaction.

1. Choose a variety. For different varieties, the trading attention points required for trading are different. The periodicity of the variety, the self-attribute of the variety, what kind of way it usually operates, what is the fundamental news, etc.

2. Data reminder. What data needs to be focused on that day or in the next few days, what is the market expectation, and what kind of impact it may have on the market.

3. Analyze the market structure. What kind of trend is the current market in, where is the potential area of ​​the trend turning point, where are the important support and resistance levels, where are the areas where trading signals may appear, where are the target points, etc.

4. Money management. If the market reaches the signal point, how much position to enter the market. What point can increase the position and so on.

5. To be supplemented

2. During the transaction

1. After confirming the trading signal, the rest is to wait. Wait for the desired point in the market, and how to operate if the market does not arrive or does not follow your expectations. Breaking through your expectations, how to operate, etc.

2. During the waiting process, what should I do when encountering data market conditions.

3. Holding positions. What kind of trading signals can be the basis for your exit, and what kind of signals can be the basis for increasing or reducing positions.

4. Appear. The price came out as expected, the price did not go as expected, should you go or stay, what is your judgment standard, etc.

5. To be supplemented

3. After the transaction

1. Summary. Making a trading list, especially the trading mentality in the process of making positions. Is there a problem with this transaction, what kind of problem occurred, how to solve it next time, etc.

2. Replay. Improving the current trading system

3. To be supplemented

Due to time constraints, I am temporarily writing here. Among them, there are two meanings to be added. One is that I haven't considered it yet; the other is that you need to build a trading system that suits you according to your own actual situation. After all, the transaction is yours.

A complete trading system must be able to answer the following questions:

1. What is the operating cycle? (choice of cycle)

2. How to determine the trend direction? (trend trading method)

3. What is the signal to open a position? (technical form)

4. Where is the stop loss of the bottom warehouse order? (Money Management)

5. How much is the bottom warehouse receipt? (Money Management)​

6. Where should I increase my position? (Technical form and fund management)​

7. How much should I increase my position? (Money Management)​

8. How many times to increase the position? (Money Management)​

9. Where is the stop loss for each position increase? (Money Management)

10. What is the closing signal? (technical form)​

There are deterministic trading rules for entry stop loss and take profit. Don't trade casually, establish your own trading system, and then strictly implement it

A perfect trading system includes at least trading indicators, entry signals, exit signals, stop loss points, profit stop points, risk control intervals, etc. No trading system is complete without any 1.

And many people in this market think that after learning the usage of an indicator, or spending a few hundred dollars to buy a trading indicator, they think that they are invincible/sleeping at ease. In fact, when they trade with their hard-earned money, they realize that they lose more than they earn.

Even if you have a complete trading system, you still need the creator of the trading system to teach you how to use it. After all, the signals that appear in the trading system are dead (calculated based on prices and formulas), so it is up to people to analyze each signal. true or false.

Finally, a strong mentality and execution ability are needed. When there is a problem with mentality and execution ability, there is someone who can point out and help you find the key to your own problems. Only by improving can you continue to improve.

I happen to be training a friend at the moment, so these are experiences, not paper.

Remember all the long stories, do a comprehensive and possible analysis, plan the feasibility of operation, risk control, and summary.

Risk control system, fund management, trading plan, trading log () review

Timing, trend selection, position, signal, stop loss, mobile protection stop loss, stop profit, liquidation and shipment.

(1) Classification of trading systems

Generally, traders choose to use two trading systems. A price following system B price predictive system. Let's briefly introduce them.

1. price following system

Follow the trend of the market through momentum indicators, oscillators, and averaging methods. The easiest thing to do is to find a suitable moving average and trade in the direction it points. Other indicators can also be added, such as MACD, stochastic indicators, RSI, Bollinger Channel, etc. A chart can have 29 unused technical indicators, and countless collocation and collaborative analysis methods. Coupled with 20 different time frames (year, month, week, day, hour, minute, etc.), it is no wonder that some traders who do not know how to do this will do analysis in front of the screen for 12 hours and dare not take a position. The key to avoiding "analysis paralysis" is to keep things simple, choose the time frame you want to work on, choose an analysis combination of two or three indicators, this system also includes trend lines. Once your trading system gives a trading signal, let it go with confidence.

2. price predictive system

Generally, it is a long-term system, which is applied to trading sessions, antennas or longer. He consists of predicting the movement of the entire currency pair over a longer time frame, then taking in on dips and distributing on rallies. Horizontal lines, trend lines, golden section lines, and moving averages are some commonly used indicators. These indicators can determine the direction of the transaction, determine the appropriate entry level, determine the appropriate exit position, and the rest is left to the trading software, and you can be busy with other things. This form of trading requires investors to have certain experience and skills. Fortunately, these can be gradually learned in actual trading.

(2) Disadvantages of the trading system

Price-following systems are often short-term "scalping" trading systems that require investors to watch the market every day in front of the screen. The investment time span of price predictive systems is generally 8 hours to a few days, and investors do not need to follow up all the time trend. Everyone has their own preferences, but in my experience, the average investor can't afford to stare at the market for a long time.

The price forecast system is often an interpretation of the company's future performance. Although the domestic market has gone through more than ten years, compared with mature foreign markets, it is just a baby that has just been born, and there are many uncertainties. There are also many traps, and completely copying the foreign advanced market evaluation system will mostly cause the risk of one's own position.

Therefore, the establishment of your own trading system must conform to the market environment, so that there will be no embarrassing situations. At the same time, your trading system must also be upgraded according to the mature pace of the market, so that it can conform to the trend of the market and become a real trading system. Efficient trading system combining concept + actual combat.

The parts of ANY Trading System (the good ones and the bad ones) are:

1. Underlying (singel symbol vs. Portfolio Trading)

2. Entry

3. Position Sizing

4. Exit

5. Transaction Weight (Portfolio Trading only)

And than you have to backtest all this rules. Like I show you in my lectures.

A perfect trading system comprises three key elements: Strategy, Discipline, and Risk Management. 

1. Strategy:A well-defined plan based on thorough market analysis and indicators. It provides clear entry and exit signals, helping traders navigate the unpredictable nature of financial markets.

2. Discipline:The ability to stick to the trading plan, even when emotions and market fluctuations tempt otherwise. Discipline ensures consistent execution and prevents impulsive decisions that can lead to losses.

3. Risk Management:Protecting capital is paramount. A perfect system incorporates measures to control and mitigate risks, such as setting stop-loss orders and managing position sizes. This safeguards the trader against substantial financial setbacks.

In essence, the perfect trading system blends a robust strategy with the discipline to follow it and effective risk management to secure long-term success in the dynamic world of trading.