Trading System

Trading, to me at this time of writing, is seperated into 3 parts:

1. Analysis
2. Pschology
3. Money managment

All 3 parts make up what we call a 'trading system'. Most people feel that if they learn 1. Analysis, they've learnt a trading system which I think it far from the truth. Some learn 1 + 3, which is better but not good enough. This is because pschology plays a big big part in taking trades. The sum of all the parts is greater than adding the parts itself!

Analysis is made up of entries and exits. The final conclusion of an analysis is to give us a signal : Long or short or stand-aside. Not all correct analysis yield correct price movements - it's just how the market is, they obey no fix rule.

Moneymanagemetn is ALL about exit. The famous saying goes: let your profit run, cut your losses short. Both are abouth exits. Your risk/rewards ratio is about exits- where your TakeProfit (exit) is in relation to your StopLoss(exit).

*You should be able to tell now that exits are far more important than entries.

Pschologoly is tricky. I simplify (and assume) it to this: pschology = greed + fear. (This is really over simplifying because pschology also includes loads of other biases that we have). We cannot measure greed and fear per se, but we can measure the effects of greed and fear. Notably this shows up in our trades (but is not limited to) as entries taken too early or late and exits taken too early or late. I also measure my heart rate sometimes- just to tell me how 'clear' I'm thinking. I note that when my HR goes up from 70/min resting to 100/min I'm usually over-trading. Correlation doesn't mean causation though.

Therefore now we have the following equations:

• Analysis = entries + exits
• Pschology = entries ( + / - candles timing) + exits ( + / - candles timing)
• Moneymonagments = TakeProfit / StopLoss
  

Sp depending what you lack, you can use the above numbers to help you target what you want to work on and focus your efforts in it. You can also come out with other exercises - the principal is to quantify each element and work on them.

Just remember to keep track of the relevant numbers in your trading journal. The journal will be our map to get from point A to point B.

Good trading.