Don’t let anyone tell you that systems trading stocks or futures is easy. I’ve been speculating in systems trading for nearly 15 years. And it wasn’t until I serendipitously found my mentors, did I start seeing success. The following is what I learned, and I suspect it will work for you too.
Step 1. Have a Plan
When you embark on any project of sufficient complexity, build a house, start a business, run a campaign…you need a plan. The same is true for speculating in the stock and futures market. Your opponent has a plan…this is a competition, there are winners and there are losers. The winners plan well.
Step 2. Find a Strategy
This is the most difficult part of developing a trading system. Because most people think its about finding A super strategy that works. The reality is that it’s not about finding a killer strategy, it’s about developing a process for creating a continuous stream of adequate strategies.
Step 3. Curate, Check and Test
This is perhaps the most important step, because it’s the gate you open to running your money. You need to check and double check your work, strategies should be back tested, forward walked, and run in simulation mode against realtime data before you commit it to real money. If you can peer review it, that would be a very good thing to do as well.
Step 4. Execute Your Strategy
This is the big moment, when you pull the trigger and trade your strategy with real money. This is when all your planning comes together, you are now a fund manager. Don’t deviate from the plan, stick with it, at least for three to six month campaigns. Anything less then random chance could make a good strategy look bad.
Step 5. Monitor, Measure and Adjust
As soon as you start trading, it’s essential that you monitor your results. Your plan is not static, it’s about continuous improvement. Keep a trade log, develop relevant statistics, note all anomalies, then review the performance of your system on a periodic basis. Use what you have discovered as input to the next round, the next campaign.
Whether you know it or not, when you trade, it’s a business, and it requires the same kind of attention that any business that you intend to succeed at should have. These are the steps I have used and found success. It takes time to settle in and get everything running smoothly, but it will be worth it.