How To Choose the Right Trading System?

How To Choose the Right Trading System?

by July Wirawan

You may have ever received an email promoting a trading system on stocks, forex, futures, etc. Talking about trading systems, there are hundreds or even thousands of them. Every single one claims to be the best. If you want to be successful in stock trading, you should have and follow a trading system, whether you build it yourself after a process of trial and error or you buy one from a third party. If you want to take a short cut, you may consider purchasing a system established by someone else.
The question is with such numerous systems to choose from, which one is right for you? A good one may not be the best for you. So here are some things to consider. 1. Choose a system in line with your objective. Not every trading system is suitable for everyone. For example, if you do not have time to monitor the screen all day, then a trading system offering a scalping method is certainly not for you. 2. Test drive the system beforehand. Many of the systems offer a certain period for you to test drive, such as 30-day trial period for free. Take a good advantage of this opportunity before you decide to purchase one. 3. Explore the historical performance. Many of the systems show how they perform in the past. Check out if you could see their performance as far back as possible. Sometimes I email the contact person and they send me more detail information than just stated on their website. Especially important, learn how they perform in bad times whether they can still outperform the broader market in such condition. 4. Learn their strategy. This means you should understand how they set up their entry point, exit point, as well as their stop loss point. Exit point is just as important as the entry point as it determines when and how much you should take profit or cut loss your position. Learn also how the system sets up the stop loss and whether it suits your trading style. Some systems aim for bigger profit but may tolerate bigger losses as well.

Once you find the trading system you believe is right for you, take some time to trade virtually before you risk your real money. This will allow you to get yourself familiar with the method as well as build your confidence. Building confidence on the system is extremely important as that is the only reason why you stick to the system during bad times.