Trading System

Why do we want to follow a Trading System? This is because, we like to EARN some money from the market.

Just by knowing the secrets of EARN, you will become a savvy investor and notice improvement in your trades, as EARN is the core essential to a great trading system.

E Spotting an Entry opportunity

A – Allocation Of Funds

R – Risk Management

N – Taking Notes & Keeping Records

 

“E” – Spotting an Entry opportunity

Most ignorance investor will jumping in straight into a buying opportunity, without taking a minute to plan out their trades. This is very likely the root cause of their failure.

The Entry Opportunity is not to hit the “BUY” key immediately, but to go through the below process and formulate a plan.

The mentality of entering a position should be to let profitable trades run and to get out of loosing trades quickly.

 

“AR” – Allocation Of Funds &  Risk Management

These 2 parts are closely interlinked, and i hope to give a clear explanations.

Allocation of funds means: out of your total investable funds, how much are you willing to LOOSE each time you enter a trade?

For example: if you have $10k of investable funds, and you are willing to loose 2% of your $10k funds ($200) on each trade. This means it will take 50 consecutive losing trades to wipe out your capital, which equals to 2.5 months* of straight losses if you place a “Buy” everyday.

Now, talk about really bad luck…

This is to preserve your capital to “fight for another day” Without capital, its like a powerful train (trading system) without gas.

 

Risk Management means: placing a targeted cut loss point based on the Entry Opportunity and formulating your optimal number of shares to buy.

For example: you spot a buying opportunity at $1, and plan to cut your losses at 5% ($0.05). Based on the above example of not risking more than $200 of your total funds, you will be able to buy 4,000 shares

This is the essential to risk management and i personally feel, the most importantly part of the entire plan. If you have a strong conviction on your buy call, you could place a tighter stop maybe at 2%, which will allow you to buy more shares (10 lots).

 

N – Taking Notes & Keeping Records

This is pretty straight forward. Without notes and records, you will tend to forget your trading plan, and you will not know your performance.

* assuming 5 trading days per week x 4 week each month

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