The Benefits of a Rule Based Trading System

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Joseph Maxwell
5 years ago
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1 The Benefits of a Rule Based Trading System

2 Contents Introduction Understanding The Truth The Ugly Truth About The System Sellers Plan Your Trades, Then Trade your Plan Finally

1 Introduction Take two traders. Give them the same starting capital, the same trading platform, the same market, and the same trading system with precise rules for entry and exit.

It's fascinating, isn't it, how two people can have the same opportunities in life, and yet get very different results. We at TradingPriceActionOnFutures.

3 1 Introduction Take two traders. Give them the same starting capital, the same trading platform, the same market, and the same trading system with precise rules for entry and exit. Come back a month later and what will you find? One trader will be up 20%. The other will be down 40%. It's fascinating, isn't it, how two people can have the same opportunities in life, and yet get very different results. We at TradingPriceActionOnFutures.com firmly believe that the answer to success lies within each of us; and that we are each completely responsible for our own results in the market. Some of it you'll already know... some of it will be new. Hopefully you'll find it useful. Losers vs winners The Benefits of a Rule Based System 3

4 2 Understanding The Truth Trading is a game of probabilities. Imagine we're flipping a coin. Heads I win one dollar - tails you win one dollar. Simple. Heads and tails will each come up half the time, and we'll both neither win nor lose. However, unknown to me, you have a loaded coin. For every 100 throws, heads comes up 49 times, and tails comes up 51 times. You now have a license to print money. Let's call it the "Tails Trading System". All you have to do is sit back and bet on tails forever. Eventually, you'd win all my money (and anyone else's who took you on). All any trading system gives you is an "edge". A favorable bias. Something that is more likely to happen than not. Whatever trading system you use... e.g.... pattern breakouts, trend-following, fibonacci, moving averages, channel following, oscillator signals, bollinger bands, swing trading, opening gaps you are relying on a positive bias. Essentially, the trading system is saying "when 'x' happens... 'y' usually follows". Sometimes it doesn't. Most of the time it does. And all your trading system does is help you identify high probability trades, enter then correctly, and protect yourself while allowing your profits to grow. The Benefit of a Rule Based Trading System 4

Now some trading systems are better than others. But don't get caught up on the search for the perfect system... You know, the trader's Nirvana... the elusive "Holy Grail".

5 Now some trading systems are better than others. But don't get caught up on the search for the perfect system... You know, the trader's Nirvana... the elusive "Holy Grail"... the system that delivers profits on demand and never, ever gets it wrong. Find a trading system that you like. One you feel comfortable with. One you understand. Then stick with it. Be consistent. A cool, disciplined, trader will take an average system and make money with it. A nervous, arbitrary trader will take a brilliant system and wreck it. All traders have "good" days and "bad" days. Some days you'll make small profits. Other days you'll make small losses. And once or twice a month, on average, you'll make big profits. That's how you make money as a traders. It's not 9 till 5. Problem is, you never know when the big trades are due to arrive. Like our "Tails Trading System" above, the one time you don't take the trade is exactly the time the market takes off and never looks back. Trading rules are only a small part of successful trading. The most important aspect of successful trading are confidence, consistency, and discipline. Rules that you can t or won t follow will not do you any good. Traders who want to be successful will figure out a way to gain enough confidence in their own rules of trading to be able to apply them consistently. You MUST see the big picture. Realize that the current trade is only one of many. On that basis, the current trade hardly matters. It's like a piece of plankton in a very large ocean. Trading is all about managing risk and then surrendering yourself to the oldest law in the Universe: The ancient law of probability. 5 5

6 2 The Ugly Truth About The System Sellers I ve been trading and hanging around trading circles since high school. One of the sad realities of the trading industry, and the futures trading industry in particular, is that there are far more people making money selling systems and ways to make money trading, than there are people actually making money trading. I won t go into specifics here, but those of us who actually trade for a living know the names of many ``famous traders who are famous as traders, but that don t make money as traders. They make money selling new trading systems, seminars, home study courses, etc. Most of these so called experts can t trade and don t trade the system that they sell. We at TradingPriceActionOnFutures.com actually trade the system right in front of everyone, with clear entries, stops and targets. 6

2 Plan Your Trades, Then Trade Your Plan Most successful traders use a mechanical trading system. This is no coincidence. A good mechanical trading system automates the entire process of trading.

7 2 Plan Your Trades, Then Trade Your Plan Most successful traders use a mechanical trading system. This is no coincidence. A good mechanical trading system automates the entire process of trading. The system provides answers for each of the decisions a trader must make while trading. The system makes it easier for traders to trade consistently because there is a set of rules which specifically define exactly what should be done. The mechanics of trading are not left up to the judgment when you should be cautious. If you know that your system makes money over the long run, it is easier to take the signals and trade according to the system during periods of losses. If you are relying on your own judgment during trading, you may find that you are fearful just when you should be bold and courageous when you should be cautious. If you have a mechanical trading system that works, and you follow it consistently, your trading will be consistent despite the inner emotional struggles that might come from a long series of losses, or a large profit. The confidence, consistency, and discipline afforded by a thoroughly tested mechanical system are the key to many of the most profitable traders success. Your job as a trader is to follow The Trading Plan We at TradingPriceActionOnFutures.com have the Complete Trading System. The rules will cover every aspect of trading; no decisions are left to the subjective whims of the trader. It has every component of a Complete Trading System; the trading system will give you the rules to follow. 7

8 If you have a mechanical trading system that works, and you follow it consistently, your trading will be consistent despite the inner emotional struggles that might come from a long series of losses, or a large profit. The confidence, consistency, and discipline afforded by a thoroughly tested mechanical system are the key to many of the most profitable trader success. A Complete Trading System covers each of the decisions required for successful trading: Markets What to buy or sell Position Sizing How much to buy or sell Entries When to buy or sell Stops When to get out of a losing position Exits When to get out of a winning position Tactics How to buy or sell. Using a mechanical system is the best way to consistently make money trading. If you know that your system makes money over the long run, it is easier to take the signals and follow the system during periods of losses. If you rely on your own judgment, during trading you may find that you are fearful just when you should be courageous, or courageous when you should be fearful. We at TradingPriceActionOnFutures.com have a profitable mechanical trading system, if you follow it religiously, then your trading will be profitable, and the system will help you survive the emotional struggles that inevitable result from a long series of losses, or large profits. The system we use is a Complete Trading System. This is a major factor in our success. Our system made it easier to trade consistently, and successfully, because it does not leave important decisions to the discretion of the trader. The point here is that the Complete Trading System covers every eventuality. You will know what to look for in the markets, when to get into a trade, and when to get out. Follow it Religiously! 8

9 2 Finally This will conclude this short E-Book about The Benefits of a Rule Based System. Having a system is not enough to make you rich. You have to be able to follow the system. The key is consistency and discipline. Almost anybody can make up a list of rules that are 80% as good as what we teach to our people. What they can t do is give them confidence to stick to the rules even when things are going bad. It is always going to be difficult to follow the rules because they depend on capturing relatively infrequent large trends. As a result, some days can pass between winning periods. During this periods it is easy to come up with reasons to doubt the system, and stop following the rules: What if the rules don t work anymore? What if the markets have changed? What it there is something important missing from the rules? How can I be really sure that this works? What if I change the rules? 9

10 So the point here is, in order for you to have success and profit in your trading, you have to be able to stick to the rules. The key benefits of using a rule based system are: Transparency Well defined entries, stops and targets A favorable bias Does not interfere with your mental stage Confidence Consistency Discipline Provide answers What s Next? If you re not already a subscriber, make sure you subscribe to our newsletter. It s fun, fast and it s free. And if you want to send some feedback or get in touch then contact us here. Also make sure you visit the website, facebook page and youtube channel where we review the latest trading setups. Trade well 10

I Always Come Back To This One Method

I Always Come Back To This One Method I can attribute my largest and most consistent gains to this very method of trading, It always work and never fails although I ve been known to still screw it up once