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Traders often ask this question:
If a trading system built by myself often fails and causes losses, should I abandon this system and replace it with another one? Is there a stable and profitable trading system?
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First of all, it is normal for the trading system to fail, just stop the loss if it fails. As long as your trading system is profitable in the long run.
After having a stable trading system, I also thought of many ways to optimize or research a new system, but every time I ended up losing money, and finally found that the original configuration was good. This may be because people who trade have relatively high moral quality One of the factors.
Then think about why it failed? Because this trading system is summed up after many losses, and it has been used for many years, the ideas and trading concepts in it have been deeply ingrained, and habits and beliefs have been formed. Faith is difficult to change, once you change, you will be confused and lose confidence. Therefore, major changes to the trading system were rarely made later, only some technical adjustments were made, and no changes in concepts were made.
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Each trading system has its own characteristics in actual trading.
Single type: single variety, single model, single corresponding trend
Compound type: multi-variety, multi-mode, multi-corresponding trends
In fact, many traders have never thought about what a trading system is. This is why I find most purely mechanical system inductions annoying. After the principle, it seems to have got the will of God, and then I don’t think about anything else. Basically, all the energy is put on optimizing the execution. To be honest, this energy is not worth it.
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Basically I think so:
1. For a trader, risk always comes first! Therefore, transactions must have a conservative risk control.
2. Second, the purpose of our trading is to make a profit. If we want to make a profit, we must have a complete trading model. We need to establish a good trading system. After establishing the trading system, we know our historical continuous loss, the maximum return withdrawn. The next step is to develop a reasonable fund management system based on your own trading system
3. The last point is execution. Strict execution. Next I will explain one by one.
01 About risk control
There is a saying that says: Trading is actually a loser’s game. First of all, if you want to survive in this market, you need to admit the possibility of failure, the possibility of mistakes, and mistakes are not terrible, but how to deal with mistakes even if there are mistakes? situation will still be rewarding?
This is an issue that needs to be considered seriously, so risk control is mentioned here. Of course, what I said here is not to say that you have no trading ideas, trading principles, or trading systems. The system will not be emphasized here. , because the trading system is a necessary condition for traders, and there is no trader without a system.
The conditions to be an excellent trader are those based on a system.
Risk control is actually divided into many categories: data risk control, fund management risk control, system withdrawal risk control, platform security risk control, trader mentality risk control, etc. For an excellent trader or trading team These are all things to consider.
Murphy's Law says that everything you think is the worst situation is more likely to happen, so you must take the worst situation into account before trading, and then try to avoid these risks. Only by knowing how to control risks can you Better to trade.
The following examples illustrate the importance of risk control.
Swiss franc black swan event. If there is no data risk control, even if the early traders have a hundred times the profit, they may swallow all the profits or even burst their positions because of one data, because the stop loss will become invalid under these data.
In this case, no matter how good your trading is, no matter how much profit you get, even if you make a hundred times profit, it has nothing to do with you.
How to control these risks?
Here it is necessary to adopt data risk control and sub-warehouse risk control.
Avoid data plus a separate account to only trade for one type of trading variety.
In this way, we take precautions under the expected data risks, and even if the worst case occurs in the event of an unexpected emergency, it will only explode the position of a single currency, and the risk is within control.
Another example is the collapse of platform providers, like the previous Lehman and Bear Stearns, these world-class investment banks may go bankrupt, and there are also international foreign exchange platforms such as Iron Exchange and an American regulatory platform in 2008. There are also countless domestic platforms, so I won’t mention domestic platforms here, it’s a completely VS betting model. Then even world-class banks and multinational platforms may go bankrupt, although the probability is less than one in ten thousand.
But the same will happen. No one can guarantee 100% that it will not happen to him, so what if it happens? Without doing platform security risk control, what is the use of the profits created in the early stage?
Another example, the devil trader Nick Leeson, if there is no decentralized control of funds, no traders' mentality to control the profits of the trading team, it still has nothing to do with you.
So are these trading system issues? No, it is a matter of various sudden risks, so we need to consider risk control before trading.
02 About the trading system
Let me first talk about how to build a trading system and what problems need to be dealt with when building a trading system. So what is the purpose of building a trading system?
The author personally believes that the purpose of systematic trading is to better avoid and eliminate the impact of mentality on trading. After forming a trading system, clarifying historical retracement, maximum loss, and quantitative solidification trading can greatly reduce the impact of mentality on trading. Influence.
Let's put it this way, in a perfect trading system, there is no such thing as mentality. In fact, it can also be said that it has broken through the barrier of mentality. In systematic trading, all systems are specific, standardized, and quantified. To execute, just like going to work, the transaction should wait and wait, then the transaction will become easier.
So what is the biggest bottleneck in the transaction in this way?
It is how to form a systematic transaction. Many times when we build the system, we will have constant problems, how to standardize, how to be specific, how to completely solve the problem of system consistency, and how to still have good returns and a good winning rate under these conditions. and profit-to-loss ratio.
This involves how to form a correct market cognition, here requires a lot of reading, a lot of learning, don't plunge into the market, get into a trading circle, get into the horns, and trade dead.
The formation of the system is actually like solving a math problem. Each problem will have multiple ways of solving the problem. When you reach a dead end, you may never be able to solve the correct answer. At this time, you must improve your cognitive height. The market is actually Like a forest, if you get into it, it is difficult to get out without road signs, so we raise the height, stand on the top of the mountain and look at it, first observe the market, plan the walking route, and then practice, so it may be easier to get out of the market , form a trading system faster. After the system is formed, verify your own system, review it again and again, summarize the problem-improvement-summarize-improvement-review..., it takes a lot of effort to take shape here, the formation of each system It’s all about replaying, constantly looking for problems.
Solve the problem of consistency, deal with the balance of probability and profit-loss ratio, deal with the balance of price on the horizontal axis and time on the vertical axis, deal with the balance between trading and life, etc.
Therefore, for an excellent trading system, it is not only to satisfy the transaction profit, but more importantly, to satisfy the life. To make a living by trading, his main body is still life, so let trading be as simple and easy as a favorite job. Only in this way can it be regarded as an excellent trading system.
03 About money management
What is money management?
Fund management is based on the trading system. Through the understanding and cognition of your own system, you can know the largest continuous loss and the largest drawdown in the history of your own trading system to judge fund management and position.
This requires a lot of review, ten years of historical data or longer. For example, in my personal system, the largest consecutive loss in ten years of history is six orders, the profit-loss ratio is more than 1:2, and the winning rate is about 50%.
However, the number of stop loss points is not necessarily the same, so a fixed stop loss amount is used for asset management here, that is to say, the stop loss amount of each order remains unchanged, and the operation can be changed. And according to Wall Street's requirements for traders, the withdrawal of funds should not exceed 20%, that is to say, as long as the maximum continuous loss range does not exceed 20% of the total funds, it will meet the requirements of Wall Street. Then 20% divided by the maximum continuous loss is the single loss amount, so it is OK to control the single loss within the range of 3%-4%.
Fund management is to stop loss with a fixed amount, and the single loss limit is about 3%. And combined with risk control sub-warehouse operation. In fact, after the system is established, traders will naturally manage funds according to the characteristics of the system.
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