Once you have firmly established goals, you are ready to start developing a trading system. At the end of the process, you’ll have a trading system ready to test. To get to that point, however, you first have to address the following topics:
The important points in each of these areas are discussed in the next two chapters.
Entry rules are the easiest part of designing a trading system for most people. Think of all the trading articles, advertisements, and information you have seen recently. What is usually the focus? “80 percent winning signals!” “Unique neural network entry techniques!” “Never-fail indicators!” “A former rocket scientist develops a foolproof technique for finding winning stocks!” The list goes on and on. Most traders are obsessed with getting the proper entry. Solve that problem, and everything else is a piece of cake, or so they think. The entry lovers love to point to the stock market and say, “Look what would have happened if you had bought Microsoft way back when.” These folks tend to ignore the drawdowns during the trade, as long as the entry was correct.
There is an even more fundamental reason, I believe, for entries being the focus of most traders. The time before entry is really the only time you feel ...