Trading Systems


To become a successful trader you must have some kind of method or system to follow that will keep you on track. You may be buying and selling on tips, the weather or phases of the moon (there is a system like that).

The two basic methods are based either on fundamental or technicals. In stock the fundamentals take into account sales, gross profit margins, net profit margins, industry growth, management capabilities, price/earning ratios, etc. In technical analysis you would be computing various moving averages (such as 200-day, 50-day 10-day) of the stock price, trend lines, Fibonacci retracement, support and resistance levels, Elliott Waves, stochastics and many others.

There is a magazine published every other month called Futures Truth that prints the trading record for about 200 commodity systems. A great way to find the best systems without losing your money.

Most of the systems you find will be based upon some kind of strict mechanical entry and exit computation and will need computer software that you will receive when you purchase it. The software vendor may even provide you with a broker who specializes in trading their method.

The reason many of these mechanical systems do not have a better ROI (return on investment) better called ROS (return on speculation) is computer systems adhere to a strict formula for their BUY/SELL signals. They cannot give you a "maybe" because computers don't understand maybe. There is no subjective influence at all. The latter will have both positive and negative results on your returns. Most people don't want any subjectivity and prefer to follow what the computer spits out whether right or wrong; it relieves the trader of the responsibility of the decisions.

There are many professional traders I knew when I was an exchange member who traded strictly on "feel" and I know many who made six figure incomes doing it.

Many people start with a professional system and will tweak it to better fit their personality. This is very common, but requires personal discipline to remain with those alterations. You can't be changing all the time.

Whether for stocks, funds, commodities or whatever you invest you must have an organized trading system that has a good exit strategy. Whatever you buy it is the exit method that will help you keep the profits you make. To be a successful investor you must have a system.

Copyright 2005


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