6 Traits Of A Successful Trading System

6 traits of a successful trading system

There are plenty of trading systems on the market today and they all make fantastic claims. How do you know which ones are for real or which ones are just hype? Simple, just verify the system you are considering has all six of the following traits:

MUST BE MECHANICAL

The trading system must be 100% mechanical with no adjusting for market conditions. No human intervention what so ever. It’s the only way to show consistent returns. These returns must show good returns for a minimum of five years.

MUST HAVE MARKET INDEPENDENCE

A good trading system must be able to profit in up AND down markets. A trading system based on stocks can only profit in bull markets since 75% of all stocks fall in a bear market. A trading system using index ETF’s is the simplest and easiest way to profit in up and down markets.

ACCEPTABLE RISK

Before choosing any trading strategy you must be able to quantify the risk and find it acceptable, otherwise, you may find yourself up all night worrying about your money. There are two aspects to consider a) the amount of the largest drawdown in the last 5 years and b) the length of the drawdown (should take no more than 6 months to recover).

maxdrawdown

CHECK YOUR RISK vs REWARD

Now that you know the drawdown that is possible with the trading system under consideration, make sure the annual returns are at least double the maximum drawdown. Your reward should be at least double the risk. You also want to see that the trading system has documented returns for the past 5 years at least, and there should no NO losing years.

MUST HAVE LIQUID MARKET

As your portfolio grows, you’ll need to make bigger and bigger trades. You need to be able to easily get in and out without affecting the price. Make sure the symbols you trade have lots of volume.

CHECK THE PERCENTAGES

Look for a trading system that has 60% or more winners. Having two winners, or more, for every loser can put you on the fast track to big gains. You also want to check and make sure that the average gain on a winner is 50% more than the average loss. For example, if the average losing trade is 10%, then the average winning trade needs to be 15% (50% more).

Apply these 6 rules to all systems you are investigating. If they don’t qualify, don’t risk your money.

If you agree the above six rules are good ones, I would like to suggest my very own Index Trading System. The last I checked it qualified on all six. Feel free to verify yourself. Might save yourself some time and effort searching.

Click Here to Leave a Comment Below 0 comments