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Designing a trading methodology – Part 8 – A brief recap

By March 24, 2010February 2nd, 2024System Design, Uncategorized

Over the past 7 weeks we have had a detailed look at the steps and processes involved in trading system design and development. Briefly recapping, these steps are:-

Step 1 – Developing a Traders Mindset, and accepting that losses are just a part of the business.
Step 2 – Identifying the tools and resources needed to undertake the journey.
Step 3 – Specifying your objectives – defining exactly what you are doing and why you are doing it.
Step 4 – Defining your unambiguous entry and exit signals.
Step 5 – Back testing your idea’s and system
Step 6 – Understanding your ‘edge’ over the market
Step 7 – Taking care not to over optimise and curve fit your system to prevailing market conditions.

Designing and building a trading system that works is a hugely rewarding project – both mentally and financially – for those that choose to travel along this path.

I recognise that this journey is not for everyone as the vast majority of market participants will never develop their own mechanical trading system. I also know that many would be system developers out there never get to the most important stage of the process – that of actually implementing and trading the system they have lovingly and painstakingly designed. Many of these people spend vast amounts of time and effort in the design and testing processes but are unable to implement the system with the discipline and process focus needed to achieve the success that the system has indicated is possible during the testing phase. Much of this comes down to the psychology of the individual. Perhaps they lack the discipline and consistency needed to implement the system in a mechanical and detached way thus ensuring that each and every trade is taken simply according to the rules they have designed. The issues of self doubt and lack of confidence may also come into play.

More often than not though systems fail to perform or live up to expectation under live trading conditions due to less than appropriate risk management and money management parameters and their application. It is essential to have strict and robust money management rules embedded in your system and to apply them with discipline. It is a well known fact that money management rules can make an average system good, and a good system great.

As both a system designer and trader, it is essential to be able to separate the two roles. It is as though you have 2 very distinct roles, and you must be able to isolate the 2. The ‘system develop you’ does just that; develops the system and then delivers it to the ‘trader you’ who implements the rules as they have been designed. If the ‘trader you’ discovers some important changes that could be made to improve the performance of the system it is important to pause trading the system whilst the ‘system develop you’ makes and tests these changes.

For those readers and traders who have no intention of ever attempting to design or build their own trading system, I hope these last 7 posts to the blog have provided you with an insight into what to look for when purchasing a commercially available mechanical trading system. You should now know some of the things to look for, some questions to ask, and what answers to expect when undertaking your due diligence and information gathering.

Here at Share Wealth Systems, we consider the 4 essential components needed for successful active investment to be;-

1. The Trading system
2. Risk Management
3. Money Management
4. Portfolio Management

In combination, these 4 components allow active investors to focus on the process of implementing the trading methodology and achieving success in the share market over the long term, using a proven strategy. If you are interested in discovering how these 4 components combine to produce a system with a proven track record and solid results with a process that requires around 10 – 15 minutes per day, then please feel free to undertake a demonstration via the following link.


  • Robin Moseby says:

    Thanks Gary for very sound advice and procedures.

  • BG says:

    Hi Gary,
    Thanks for the excellent summary of what’s needed to design, build and trade a mechanical trading system!
    Do you know if there are any on-line or off-line resources that list (and possibly review) all available commercial (or free) mechanical trading systems? This would be a useful resource in order to compare and contrast the various systems available.
    Otherwise would you know of any other commercial systems besides the SWS products?

  • David P says:

    Thanks Gary for a fabulous series. I am recommending your system to my father.
    David Payne

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