FAQ Is There a Strategy or System that I should Use and where Can I Find it?

SHORT ANSWER

Caveat Emptor
New traders are often all too willing to get their wallets out, thinking they can buy a short cut to financial freedom. Even when you're dealing with good vendors selling reputable products, this rarely ever works. Given that many of the vendors out there - some would say most - are crooks selling nothing but pipe dreams - you need to be incredibly vigilant about who you hand over your money to. Our advice is not to pay anyone a penny - regardless of how credible they may appear - without first undertaking extensive due diligence, starting with these two FAQs:
How Can I Distinguish Between Scams and Reputable Vendors?
Can You Recommend a Mentor, Coach or Trading Course?

Understanding, probability and method
Strategy, system or methodology – all tend to be used interchangeably. Precise definitions aren’t that important. What is important is that you have a sound trading approach that works for you. Trading is not about winging it, hunches or gut instinct. It’s about understanding, probability and method. Think of the quirky little routine that rugby player Jonny Wilkinson goes through every time he takes a spot kick. You’re after the trading equivalent of that.

. . . but where can I find it?
You can start by taking one of the many canned approaches found in books, on the web or here on T2W (see ‘Useful Links’ in post #3) and then developing it. Or, you could buy a methodology from someone else. However, be wary about paying out for one because – although the vendor may be able to make a fortune trading their own methodology, the probability of you being able to duplicate their success is very slim indeed. Why? For the same reason that lots of young rugby players try to mimic Mr. Wilkinson, but very few of them end up with a kicking style that’s identical to his. Fewer still have a conversion record anywhere near as impressive! And so it is with traders. Ultimately, the trading strategy that works best for you is likely to be one that you develop yourself.

Start at the beginning
Before you start looking for a strategy or system – you need to know what to look for. As obvious as this sounds, it’s something that many newbies fail to consider. If you’re in the market for a new car, you don’t just look at anything with 4 wheels, you narrow your search to saloons, or 2 seater sports cars or 4x4 people carriers – or whatever it is you’re looking for. Similarly, if you narrow down your focus when searching for a trading methodology, life will be much easier. How to set about doing this is explored in the Long Answer.

LONG ANSWER

Definitions
A lot of trading jargon is black ‘n’ white and has a specific meaning about which all traders agree. Examples include words like ‘long’, ‘short’ ‘bid’ and ‘ask’ etc. Equally, there are numerous other words and terms that mean different things to different people. For example, it’s up to each trader to define what constitutes a ‘trend’ or how a ‘retracement’ differs from a ‘pullback’. Similarly, the precise definition of ‘system’ and ‘strategy’ is not cast in stone and varies from one trader to the next. But, at the heart of each lies the core practice of entering, managing and exiting a trade. Moreover, broadly speaking, the terms are interchangeable, with ‘strategy’ being used mostly by discretionary traders (DTs), while ‘system’ tends to be preferred by mechanical traders (MTs).

Which camp are you in?
All traders fall into one or other of these two camps. To learn more about them and to discover which approach suits you best, please read the FAQ entitled: What’s the Difference Between a Discretionary Strategy & a Mechanical System? Regardless of whether you’re a DT, MT or a bit of both, you’ll need to operate your trading business within the context of an overall trading plan. Next, we’ll outline what this means, before going on to discuss strategies and systems in greater detail.

A trading plan – all traders must have one
If you’re a ‘retail’ trader, trading your own account, you are your own boss. The upsides of this are largely self evident, but the downsides include a tendency for some traders to allow sloppy and ill-disciplined habits to take root which, almost inevitably, have a negative impact on their P&L. Just as the legal and financial worlds have codes of conduct that, in theory anyway, ensure basic standards are adhered to consistently across the board, traders need to self regulate their activity to increase their chances of success. A trading plan is the ideal way to do this and a plan that is well thought out will pay dividends to the trader who sticks to it. So, what is it exactly?

A trading plan – why all traders must have one
A trading plan is a set of rules and guidelines that cover every aspect of your trading life. Your strategies – or systems – are just one part of your overall trading plan. There are many other elements to consider. As has been mentioned already, deciding if you’re more suited to discretionary trading or mechanical trading is a very important one. Others include doing a basic SWOT analysis to discover your strengths, weaknesses, opportunities and threats. This is important as all traders are very different; some perform brilliantly in one environment and very poorly in another. For example, if you’re a very impulsive person who tends to act first and think later, then swing trading on an end of day basis (EoD) might suit you better than day trading, where you have little or no time to think and you may end up regretting some hastily made decisions!
The jewel in the crown of a good trading plan is the part that details your risk and money management strategy. Many experienced traders will argue that this is much more important than the trading strategy or system employed for entering and exiting trades. In the links provided in the next post, there is one to an article entitled ‘Trading Plan Template’, which covers the whole subject in detail and, as the name implies, provides a template that enables you to develop a bespoke trading plan all of your own.

Strategies & systems = methodology
For the purpose of this FAQ, no distinction will be made between a strategy and a system and, from here on in, they will be referred to by the catchall term ‘methodology’. Regardless of the type of trader you are, you must have a methodology for entering, managing and exiting your trades. This process will be executed by hand in the case of discretionary traders and by computer software such as an ‘expert advisor’ (EA) in the case of mechanical traders.

Basic trading styles
There are numerous types of trading styles, utilising a wide range of methodologies. For the most part, retail traders tend to be directional players who analyse the markets and make their trading decisions based on a mix of technical and fundamental analysis. (This is explained in the FAQ entitled: What is Technical & Fundamental Analysis?) In other words, if they think the market is likely to rise – they go ‘long’, and if they think it is likely to fall – they go ‘short’. Most TA based methodologies fall into one of three main categories: reversals, breakouts and retracements. The ‘Basic Trading Styles’ graphic below illustrates the core idea behind each of them. Please note that the purpose of the graphic and accompanying text is solely to explain the terms ‘reversal’, ‘breakout’ and ‘retracement’ respectively. It’s not intended to provide insight into how markets function or to offer reasons why prices rise and fall.



Reversals, breakouts & retracements
The key thing to note about these three styles is that they usually negate one another. The reversal trader who sold price at 1 would have sold to a breakout trader. The breakout trader who bought at 2 would have bought from a reversal trader looking for a possible double top at the PDH. The retracement trader who went long between 3 and 4 would have bought from a reversal trader who sold the recent pivot high. So on and so forth.

Why TA ‘fails’
The explanation above, although very simplistic, highlights how different trading styles tend to conflict with one another and explains - in part at least - why TA fails a lot of the time. Often as not, neither the chart as a whole - nor individual candlestick patterns within it – will favour one type of trader at the expense of another. It’s only in hindsight after the move has played out that all is revealed. It’s for this reason that backtesting specific chart patterns tends not to produce success rates much above 45%. To develop a methodology with a success rate of 65% or better, you must find ways to filter out the false signals. One way to do this is to look beyond charts, candlesticks and indicators and try to gauge market sentiment. Bearish sentiment will favour the reversal trader looking to short a double top, while bullish sentiment will favour the breakout trader looking to go long upon a breakout to fresh highs. The trader who is able to accurately and repeatedly gauge a confluence of chart pattern and market sentiment, stands a much better chance of long term success that a trader who lacks such skills.

Another way to filter out false signals is to look at the overall context in which they appear. To focus on chart patterns in isolation without looking at the big picture will, almost inevtably, reduce the success ratio of proftable trades to unprofitable ones. For more info' on this with examples, please read the FAQ: What Triggers do you use to Enter a Trade?

It's traders that are profitable – not their methodologies
Most of the methodologies found on T2W and other trading forums are based around one or other of these three trading styles. Many are completely free for you to experiment with. Others can be found in the pages of a good book and some can only be obtained from vendors charging anything from a few pounds to many thousands. It’s fair to say that there is a general consensus of opinion amongst experienced traders that the ‘best’ methodology is the one that you build yourself. Best is in parenthesis because there are few objective measures which makes one methodology better than another. Just because one person is very profitable using methodology A, it doesn’t follow that everyone else will also be successful with it. The next trader might fail dismally with methodology A, but do extremely well with methodology B. This is a vitally important concept and one that many new and inexperienced traders struggle with. Almost daily on T2W, you can read posts from members wanting ‘proof’ that a particular methodology ‘works’, often refusing to accept that their results will be completely different to everyone else’s. The only thing that matters in this game is what works – or doesn’t work – for YOU!

Keep your feet on the ground
With the above point in mind, if you’re planning on using someone else’s methodology, you must be realistic about your expectations. It cannot be emphasised enough that the likelihood of duplicating their results - assuming that you want to - is very slim indeed. The odds improve with a fully automated mechanical system in as much as there is little or no discretionary element. Although, here too, results can vary significantly between one trader and the next - trading the same mechanical system. However, be aware that the lifespan of black boxes and EAs etc. is often quite short, due to the fact that the markets evolve constantly, while computer code only evolves as and when someone re-writes it. Make no mistake about it, adopting someone else’s work and attaining similar results to them is very difficult. For more information on why this is so, check out the link to the ‘Turtles’ in the next post.

The best solution
By far the best route is to develop your very own methodology that’s right for you and compliments your personality, skills and objectives. Many traders start off with someone else’s methodology and then modify it gradually until it evolves into something quite different. Free ones are available here on T2W; a couple of which are linked in the next post. There’s also the Free Systems sub-forum where you’ll find many more. Additionally, many traders outline the basics of their methodology when creating a journal so that members can understand what they’re doing and, more importantly, what they’re trying to do. So, lots more ideas and inspiration can be found in the Trading Journals forum.

USEFUL LINKS

If you find other threads, Articles or sites on your travels around the net that are relevant to this FAQ, please add a link to them in this thread, outlining what it is that you like about them. Thanks!

T2W THREADS
The 4 links below are to some popular threads in which each author outlines a simple trading methodology that anyone can use. Please note that this is NOT a recommendation for any one of these threads. Additionally, as has been made clear in the Long Answer - just because some people do well utilizing the ideas presented in them, there is no guarantee that they will work equaly well for you!

Comprehensive Trading System/Methodology by bbmac
This is a comprehensive trading system/methodology to trade the forex markets. However, it may be applied to any liquid market across any sector.
How To Make Money Trading The Markets by Mr. Charts
A simple method for day trading U.S. equities. Anyone interested in this thread may also be interested in the interview with Mr. Charts in the Articles section.
Making Money Trading by trader_dante
This thread is one of the biggest and most actively viewed in the history of the site; started by a former prop' trader. Allied to this thread is another one by trader_dante entitled Potential setups
The 3 Duck's Trading System by Captain Currency
A simple technique to ensure that you have the wind on your back in three timeframes.

T2W ARTICLES
How to Develop a Profitable Day Trading Strategy by Markus Heitkoetter
This article does what it says on the tin and covers the basics for the d-i-y trader wanting to develop a day trading methodology all of their own.
Trading Plan Template by Tim Wilcox
A series of questions with sample answers that will enable you to create your own bespoke trading plan, tailored to your skills, personality and trading objectives.

EXTERNAL LINKS
Trading Strategies
Here's a good selection of 'canned' strategies. WARNING: do not trade them with real money until you have paper traded them first: you'll probably lose money if you do! However, they will give you an insight into the range of strategies available and, hopefully, spark ideas to help you create a bespoke strategy of your own.
SWOT Analysis
Learn how to assess your strengths, weaknesses, opportunities and threats - as they apply to trading.
Turtle Trading: A Market Legend
Nature or nurture: are traders born or made? This experiment set out to answer this very question. Anyone interested in the Turtles might enjoy Trading Places - the hit movie from 1983 starring Dan Aykroyd and Eddie Murphy. On a more serious note, the books of Curtis Faith - one of the original Turtle members - have received excellent reviews, especially Way of the Turtle
View attachment The Original Turtle Trading Rules.pdf
Even if you're not interested in the Turtles or their rules, this is a good read. The foreword alone is interesting as it explains why the rules were published for free and provides valuable insight into the marketing of trading systems.
raczekfx chart thread
Here's a thread on Forex Factory that might interest the newer trader. It looks at price action and divergence etc. It's not a system, more of a discretionary approach to trading for the more thoughtful, patient trader.

Yes there is a system you should use, and it's the one you develop on your own through experience and trying other people's systems. If there was a "perfect" system out there then everyone would be using it and making a ton of money.

Re: Is there a system I should use, and where can I find it?

there are a lot of systems, and all of them have their proc and cons. You need just a lot of practise and theoretical knowledge to create your own system... But don`t try to find the Hole Grail - it`s just not exists)

Re: Is there a system I should use, and where can I find it?

StockHunter said:

Yes there is a system you should use, and it's the one you develop on your own through experience and trying other people's systems. If there was a "perfect" system out there then everyone would be using it and making a ton of money.

Click to expand...

This is a very good answer. In addition I would add this -- if you are using someone else's system, how can you hope to have confidence in it through drawdown? You will most likely abandon it when it's about to start performing again. You HAVE to build your own system, anything else is a false economy.

Re: Is there a system I should use, and where can I find it?

All good advice, a good starting point is the james16 price action method as described on forexfactory.com. However in my opinion its not a 'full' system, you still have to find a way to use it that suits you. For instance I could never use it successfully on forex but I found a way to use aspects of it to trade futures on low timeframes (5 or 15 minute charts), exactly what you are told NOT to do on the thread.

Murrey Math sistem

Murrey Math is not the holy grail, but the performance of properly, can predict the price movement. Since the rules Murrey Math tied to the geometry, the trader can expect some predefined price movement. Recognizing these movements, a trader increases his chances of finding the correct side of the market. The basic principle of trade Murrey Math, can be defined as - to define a trend in the market, trading in the trend, and a quick exit from the trend with a profit (because the trends are very short). http://www.robot4free.com/murrey.htm?awt_l=FSRjd&awt_m=Jk3BP4TDNTWeOp -

Re: Is there a system I should use, and where can I find it?

Having traded for many years its quite clear that the main reason people trade is to loose money! But they start in the belief that with the intensity and poliferation of these hyped up websites that tell you your going to be rich very quick, that its the next best thing since sliced bread. There are stats available, but its something like 80-85% of traders loose and never year on year make a profit. 10% make a nice living and 5% make a fortune.
So your chances of winning are tiny, as the top 15% include the pros aswell so Joe average doesnt have much of a chance.
But does the normal person get out scott free, oh no you normally spend thousands on the way and loose constantly.But you then have the bug and your hooked so you keep spending.
There are plenty of systems out there but most are just the same group spewing out different named products and giving each other testimonials to make it look good. Goodness knows what stupid named holy grail will be clickbank marketed tomorrow. Lets have a think what i can think of "Forex Devastation" I can just see the sales copy and how it would go. "Devastate the forex spreadbetting companies with the BEST forex system launched this year" .
Anyway back to reality. It takes years of hard work and patience to become a seasoned trader so please dont go off chasing the next holy grail as all you do is keep chasing the next system. Stop, keep your money in your pocket and start learning from the ground up.
Dont get me wrong there are a number of good systems out there and only a few good signalling services so your limited with help. I dot mean for this to be pessemistic I just want to say it as it is. There are plenty of people on this forum who thrive on negative and lack of knowledge comments, so take these for what they are and ignore them. This forum should be used to help others and there are some good people on here for this.
But when you get it right BOY does it work and you get some great money. So look for someone with experience who will take you under their wing and help.
It would be good if we had a section on the forum where stystems could be tested to see them for what they really are, maybe one of our moderators might see this. Wouldnt it be great if we had a section which sifted these out and had real analysis. Anyway my thoughts fornow
Regards

Re: Is there a system I should use, and where can I find it?

I prefer to use a method rather than a system.

Re: Is there a system I should use, and where can I find it?

I agree as a method is a way of doing something, especially in a a systematic way. (definition of method) it cannot be the other way around.

Re: Is there a system I should use, and where can I find it?

pjchalmers said:

It would be good if we had a section on the forum where stystems could be tested to see them for what they really are, maybe one of our moderators might see this. Wouldnt it be great if we had a section which sifted these out and had real analysis.

Click to expand...

- Section to test systems for what they really are
- Sift them out with real analysis

Great ideas. First candidate surely has to be this one http://www.tradingelitemembership.com/ "Trading Elite Club". Wonder if that one can stand any sort of test?

Reason I posted the above rather flippant comments is that I believe that the author of posts 9 and 11 just happens to be the same person that is behind the latest 'attempt' http://www.tradingelitemembership.com/ Sounds good on the face of it doesn't it?

I just had to respond the way I did though after reading some of this thread here http://www.bizoppjungle.com/Forum.aspx?g=posts&t=541 Bit of a mission to read through, but it gets very interesting as it progresses. It seems to me as if the poster above is suggesting what others should do, but not be subject to the same themselves. I don't know to be honest as I also have been there before and am wiser for it.

Anyone involved in what we do obviously needs a level head and analytical brain. I have picked up on the sales points that are promised on the Trading Elite website and have seen them all knocked down on that Bizopp thread. Sure there is some lively posts, but there is some good meat there as well

pharland said:

Reason I posted the above rather flippant comments is that I believe that the author of posts 9 and 11 just happens to be the same person that is behind the latest 'attempt' http://www.tradingelitemembership.com/ Sounds good on the face of it doesn't it?

I just had to respond the way I did though after reading some of this thread here [B]http://www.bizoppjungle.com/Forum.aspx?g=posts&t=541[/B] Bit of a mission to read through, but it gets very interesting as it progresses. It seems to me as if the poster above is suggesting what others should do, but not be subject to the same themselves. I don't know to be honest as I also have been there before and am wiser for it.

Anyone involved in what we do obviously needs a level head and analytical brain. I have picked up on the sales points that are promised on the Trading Elite website and have seen them all knocked down on that Bizopp thread. Sure there is some lively posts, but there is some good meat there as well

Click to expand...

Would appear the thread you refer above was accidentally deleted -



but a new one was started here -

new thread

:whistling

Well Done PS

This one needs to be kept being highlighted for the ongoing farce that it is.

pjchalmers can think himself very lucky that his shovel selling excercise has not been put under test here. He has proven himself to be totally incompetent from day 1. He refuses any sort of trial. He insists on a £100 up front payment for people to be his guinea pigs while he tries out different technologies and trading 'methods' (word used loosely). He treats his subscribers disgracefully and withdraws elements of his 'service' at will, resorting to banning them completely when they dare to question any part of what he is doing.

The original Bizopp thread contained a lot of good quality comments that have unfortunately now been archived. They can still be read though via the link on the first page of the new thread.

A system or strategy has alot to do with what your goals are in trading.

You're never going to find a shortage of methodologies to trade but until you define your objectives and match them to you personality then, IMO, you're spinning your wheels.

Warren Buffett and George Soros are amazing investors/traders that achieve staggering results due to their unique approach to the markets - value investing for Buffett and Soros' Theory of Reflexivity - which is attributed to having their trading approach match their own personality and beliefs about the market.

You trade your beliefs, not the market. Your system/strategy is how you define your criteria (what you trade) and then measure the criteria for your trade (buying, trade management, and selling).

Buffett can't invest like Soros and vice versa just like I can't daytrade like Marty Schwartz but can swing trade more like a cross between Dave Landry and William O'Neil.

My personal beliefs are that there is always a trend somewhere in the market, that the market is in trading range for the last decade and is not prone to a Buy & Hold strategy in the long-term at this moment in time, making money in the market should be easy and you make it easy by having a highly defined set of criteria to be met before entering any position, that controlling risk is the most important thing that you can do to avoid big losses, that avoiding huge drawdowns allows you to keep making money consistently, its better to make small consistent returns that wild gyrations in your equity curve as it leads to greater returns over the long-term, and there are a few others but you get the idea.

Figure out what you believe about the market to be true for yourself and then build an approach around it. Then, practice putting that system/strategy into productive use in the market, observe yourself, observe your results, take lots of notes, seek improvement in the application of your approach along with seeking improvement in the execution of it, and never give up.

u can trade "ANY" ideas about market ,as long as u know the fact that entry points is not important and most important thing is exit points.so with this in mind there is no preference of elliot wave to any oscilator based strategy or... . as long as u can cut your losses short and let your profits run almost "EVERY" system or idea is tadeable

what happens if you stuff you re entry on every trade?
average down ?
loose ?

if your stopped out every trade as you stuffed the entry, whats the point of an exit?

besides entry always comes before exit
unless your walking backwards

get the entry at least nr right and you make something - a good exit just means more

personally as i see more nonsense in the market - its risk 1st (stop)
then entry
then exit

the statement that the exits more important than entry has to be one of the silliest banded around
much like risk on risk off - another i really don't like
the markets are always damn risky

WR1 said:

what happens if you stuff you re entry on every trade?
average down ?
loose ?

if your stopped out every trade as you stuffed the entry, whats the point of an exit?

besides entry always comes before exit
unless your walking backwards

get the entry at least nr right and you make something - a good exit just means more

personally as i see more nonsense in the market - its risk 1st (stop)
then entry
then exit

the statement that the exits more important than entry has to be one of the silliest banded around
much like risk on risk off - another i really don't like
the markets are always damn risky

Click to expand...

the top traders win rate is less than 40 % , sometimes even less than 40 % .so it means that even a best system entry point is valid "LESS" than random ! which is 50 %.
as in the book named " trade your way to financial freedom" one of future top traders (i think ed seykota) had an experiment which entered market by throwing a coin (toss)! but trailed s.l and had clear exits and he was sucessful .
even in my own trading my entries is not much more better than random ( and i think there is no one who claims that have best entries, what matters is exit points (sl + profit taking ) . i think it is not silly .

Commodity_Trader said:

the top traders win rate is less than 40 % , sometimes even less than 40 % .so it means that even a best system entry point is valid "LESS" than random ! which is 50 %.
as in the book named " trade your way to financial freedom" one of future top traders (i think ed seykota) had an experiment which entered market by throwing a coin (toss)! but trailed s.l and had clear exits and he was sucessful .
even in my own trading my entries is not much more better than random ( and i think there is no one who claims that have best entries, what matters is exit points (sl + profit taking ) . i think it is not silly .

Click to expand...

It's circa 40% because they are trying to hit greater than 1 to 1, risk to reward no?