The Road to Successful Trading

 
The Trading System 
 
Developing a trading system is the central core of trading. A trading system is a set of procedures 
and rules designed to provide a specific recipe for trading. Some people like to call it a trading 
methodology but in reality it is a set of clearly defined rules and procedures for trading. It is a 
customized trading paradigm. The end result is to create a system that if implemented consistently 
on every trade will result in a higher than chance win-loss ratio.
How to Design and Construct An Effective Trading Plan 
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It doesn’t mean that the trading system is set in stone. On the contrary, a trading system should be 
in constant evolution with the spirit of reaching for perfection. But because of the “chaos factor” of 
the effect of infinite permutations of variables, perfection is not possible. As many in the trading 
field like to say: “there is no Holy Grail in trading system. 
The trading system is made up of fundamental and technical analysis, money management, and all 
procedures that take the trader-step by step- from selection process to closing out the trade and 
journalizing entry. Additionally, the trading plan is written out and can be used as a checklist for 
each trade. Specific profit and loss targets are pre-established and violation of any parts of the 
trading protocol is heresy.
The trading plan is the formalized description of exactly how the trading process is to be 
implemented by the trader. The implication is that if the trading system is followed to the letter, the 
trader’s goals will have a high probability of being realized. 
As the market is loaded with chaos factors (the unexpected), few trades go exactly as planned. But 
this fact is an important driver in the continuing learning and tweaking process. An important part 
of the trading system is to do a “postmortem” on every trade. This is done by way of a Trading 
Journal and we will cover this important part of the trading system later in the book. 
Once a system has been developed and tested over time by the use of paper trading, a trader 
develops a sense of the reliability of the system and builds the necessary confidence needed to 
develop the “faith in the system” and formulate trading into more or less a mechanical event.
In a later chapter, we will go into more detail about developing a trading system but suffice it to say 
that by now you can see that it takes time and study to become a trader. But traders can make a lot 
of money and live a lifestyle few can imagine. Did think it would be easy? Trading is not easy 
money. It is very difficult money and not a profession for most people. Looks may be deceiving and 
this is indeed the case with the image of being a trader. 
In summary, the underlying philosophy of trading is to design a trading system which can provide a 
higher than chance win-loss ratio together with a strict set of trading rules that will allow the trader 
to trade mechanically and divorce-as much as possible-trading from human emotions.