Chapter 15. Developing Your Own Powerful Trading System
In This Chapter
Understanding mechanical and discretionary trading systems
Identifying the tools and data required for system development and testing
Understanding the pitfalls of system optimization
Evaluating trading systems that you can buy
Maintaining a trading log
A trading system is a collection of technical and fundamental analyses tools woven together to generate buy and sell signals. Trading systems often are built using common indicators, oscillators, and moving averages (see Chapter 11). You can combine these various technical-analysis tools to create a virtually unlimited number of trading systems. For the new trader, the advantage to this approach is that you don't need to invent something new to create and personalize a workable system.
The downside, however, is equally obvious. Many traders use these common tools and end up with a system that offers little competitive advantage and only modest (if any) profits. In addition, these systems can be difficult to use, because the signals of one trading system mirror the signals of many others, which makes entering and exiting positions troublesome.
Ultimately, you want to develop or adapt a trading system that closely fits your personality and trading objectives. This chapter helps you methodically develop and add to a trading approach that utilizes your own personalized repertoire of trading systems. It also helps you recognize and avoid destructive and costly habits that ...
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