How did you find your trading system?
This is where most traders go totally wrong and it is one of the major reasons why the majority of traders fails. They pick a trading system that does not go well with their character traits, their belief system and their personal strengths. Often, a trading system is the exact opposite of how they should be trading. Of course, their trading results are then not where they should be.
Ask yourself: how did you come across your current trading system? Did you find it in a forum, after a google search or was it recommended by someone you talked to in a chatroom? Most traders randomly choose their system and don’t think about the characteristics of their trading system and how it matches their personality.
Know yourself . Self-awareness as the key to trading success
How well do you know yourself? Most people spend more time surfing through trading forums looking for the next system than really thinking about who they are as a trader. Are you patient or get bored easily; are you a good decision maker or does it take time for you to decide; are you emotionally stable or do you revenge trade easily; can you maintain a high level of focus for a long period of time or do you get distracted easily?
All of these questions are important to answer if you want to find the PERFECT trading system. You need a trading system that leverages your strengths, limits the exposure of your weaknesses and allows you to use your full potential.
Two major trading styles
In the following we separate between day-trading and swing-trading. Of course, there are a few more trading styles but those two types build the foundation for most trading styles.
Day-trading describes a trading style where the trader actively trades for several hours, usually on the lower time-frames and makes several trades in a day.
Swing-trading is the opposite, where the trader follows the higher time-frames, only has a few trades every week or month, rarely more than one a day and does not sit in front of the charts for several hours at a time.
The table below shows the differences between the two trading styles with regards to different characteristics and emotional concepts.
|Decision making||Has to make lots of decisions in a short period of time.||Has more time to think through his decisions.|
|Handling drawdowns||His trades are over fast and drawdowns don’t take much time.||Drawdowns and pullbacks during trades can last for days at a time.|
|Focus||Needs a lot of focus during the active trading sessions.||The active trading time is limited and during the trading sessions, not as many things have to be done.|
|Patience||Several signals and trades during one session.||Needs a lot of patience. Often, waiting days or weeks for setups.|
|Emotional stability||Has to be emotionally stable. Has to be able to shake off losses fast and keep on trading. Revenge trading can be a problem.||Has time to recover from a loss. He rarely has to make more than one decision during a trading session.|
|Pressure||Lots of pressure during live trading. The lower time-frames can move fast, many influencing factors at all times.||Has time to plan and analyze his decisions and trades.|
What does this mean for you?
This article has the purpose to help you audit yourself and also show you that choosing a trading system has to be done with caution. To live up to your full potential as a trader, you have to have a system that supports your strengths and leaves out your weaknesses.