Design and Evaluation of the Trading System

The trading system is a complete set of operating rules, similar to human-computer interaction systems in computers or the reflex mechanisms in biology. It includes a series of clear signal rules for entry, exit, stop-loss, and take-profit.

Many people have misconceptions about trading systems, believing that owning or improving a trading system will lead to stable profits. However, in reality, there is no universal system that guarantees eternal stable profits. Even with an excellent trading system, users must possess strong execution skills and find a system that suits them.

The trading system is similar to military guiding principles; it operates at a strategic level. While it cannot guarantee victory in every battle, it can help avoid catastrophic defeats and preserve future opportunities. On this basis, it is also necessary to combine specific operational thinking and strategies, as well as tactical trading actions.

The core metric for evaluating a trading system is the "profit-loss ratio," which is the average profit amount divided by the average loss amount. Ideally, the profit-loss ratio should be no less than 2. A profit-loss ratio of 3 can be considered passing, 4 is good, 5 is excellent, and anything above 5 is very rare.

When designing a trading system, it is necessary to first clarify the investment objectives, expected return rate, and risk tolerance. A complete operating system should include the following seven elements: cycle judgment, operational thinking, coin selection, timing, buy and sell rules, capital management, and risk control.

1. Cycle judgment is crucial for following the trend, as it can improve the success rate of various strategies and provide important references for subsequent operations.

2. The operational mindset determines the strategies in different market conditions, similar to a battle plan.

3. Selecting coins is particularly important during a bull market, especially for large funds. Quality coins usually have a moderate circulation, a good market image, and substantial development prospects.

4. Timing and trading rules need to be adjusted based on different market conditions and operational thinking, but a certain level of flexibility should be maintained.

5. Capital management includes formulating profit protection strategies and principles for leverage usage. For beginners, it is advised to use leverage cautiously.

6. Risk control is the last line of defense for a trading system, helping to avoid mistakes caused by greed or a sense of luck.

The complexity of trading systems varies from person to person, and the key is to find an efficient system that suits oneself. For example, the Granville Eight Methods is a simple trading system based on moving averages, which includes four buy rules and four sell rules. However, even such a general system needs to be adjusted according to specific market conditions in practical application.

Start Enhancing Bull Market Profitability from Building a Trading System