The Difference Between a Good System and The Right System

A good system is one thing: a system that has a high profit expectancy.

The right system is two things: a system that has a high profit expectancy AND a system that YOU can trade with consistency and discipline with minimal error.

Before i go any further into different styles and methods of trading, i wanted to take a step back and re-emphasize what i've been mentioning periodocally throughout the blog: YOU MUST FIND A METHOD OF TRADING THAT SUITS YOU AND YOUR UNIQUE PERSONALITY.

You might be asking how that's done or even why you should bother but let me assure you that even though you might not see it now, it will be well worth your time.

Before you ever place your first trade or build or buy your first system you have to do some soul searching. It's important to take a look at yourself and determine what you expect to get out of trading. Determining your objectives is such an important part of learning to trade yet so few take it seriously enough. The answers will ultimately serve as your guide to your perfect system.

Let's take a look at some things you should be finding answers to:

• How much time do you have to dedicate to trading each day?
• How much time will you dedicate to training, which can include personal psychological work, developing systems, reading, etc.
• What are some of your personal strengths and weaknesses? Are you patient? Do you consider yourself the introverted or extroverted type? Are you typically a disciplined person? Do you panic easily?
• Do you have personal conflicts (could be work, could be family or anything else that can arouse emotions with the potential to interfere with trading)?
• How much money do you have to dedicate to trading?
• How much are you willing to lose? How much drawdown are you willing to endure?
• Are you trading to earn a living or build wealth over time? If trading for a living, how much do you need to make in a year to live off?
• What are your return expectations?
• What kind of market conditions would you feel most at ease trading? High or low volatility currency pairs, pairs than tend to trend, range, a bit of both?
• How do you view money management? How will you manage your risk?
• How will you enter trades? Purely technical reasons or fundamental reasons? Combination?
• How exit methodology do you feel is best for you? Trailing stops? hard stops? Technical stops? Do you see yourself going for smaller, more frequent profits or trading less frequently but going for much bigger profits?

I can continue to go on but i think you get the main idea. For a more detailed explanation of this idea, i strongly recommend you read Van Tharp's Trade Your Way To Financial Freedom.

Write down your answers and let them lead you to a system or style of trade that feels right to you and fits your current lifestyle. Too many try to fit the system rather than letting the system fit them. Once all the building blocks are in place trading should be effortless because it's right for you. If it's not right for you then trust me when i tell you that you will eventually find a way to sabotage yourself that will show up in many different forms:

1. It might show up in the form of a lack of discipline, not following your plan
2. It might show up as you quickly losing confidence in a system when it starts losing
3. It might show up as a feeling of boredom, feeling the need to find something more exciting.

You see bad trading is not necessarily the result of a lack of discipline but rather not having the right system to trade with in the first place. Brett Steenbarger in his excellent book Enhancing Trader Performance, mentions that lapses in discipline are often subconcious attempts at moving away from something that doesn't fit to something that does.

So spend some time self-assessing and thinking about your objectives before placing your hard-earned money on the line...you will thank yourself later on.