Developing your System

For those who have studied Henry Ford, they already know he was one of the original founding fathers of “system” solving to make life easier. Those that don’t know, he was the first true industrialist to systemize the assembly process in order to increase productivity. When he achieved this feat with the Model T production, it took the car industry and especially Ford on a path most did not expect. He was able to take the production time from roughly 13 hours and drop it to roughly 1.5 hours, no small accomplishment. This was all achieved by having workers specialize in one specific area of the car manufacturing process.

The Henry Ford rant is nothing more than giving a brief glimpse into the power of having a system, which is something that is so often talked about or not talked about enough. Your “trading system” should become your ride or die. This is something as a trader one should be willing to stand behind without regard for anything else. The moment you break your system, the market will never have any problem dishing out a loss, as you have to lead yourself into a self-demise. The following image is nothing more than an idea. All traders should work to develop their own trading system: something that has been back tested and proven over time to bring success.

There are several key points that I make in this diagram that I will mention, however, I will not cover them in grave detail as that takes away the learning process. Use this as a guide to question your success or lack of. Maybe you have already created a profitable system and that is great! Keep doing your thing and crushing the market. However, for those who lack the consistency remember that your success is a direct result to the system and habits your have formed/currently follow.

The four main points that almost always must be present for any solid trade are: Edge, Environment, Catalyst and Chart. There are many more of course both tangible and intangible but these have been a bedrock for myself and thus I mention them as some of the top parameters to press when evaluating a trade.

Edge…. Read “Trading in the Zone” by Mark Douglass. I believe one can buy it used for roughly $10-$15 dollars. Study it, master it, read it again and again and again. The amount of time you spend developing your edge will have a masterful effect on your end goal.

Environment…. Study past movers, past markets, breakout names, failed names, etc. Everything that has happened will happen again. Humans have been programed to act in a similar fashion for thousands of years. Once this is understood you have a leg up on reading your opponent.

Chart…. Just CHART IT. If you want to learn charts, study them. Look at the best runners from last week, month, year etc. How did they move? Why did they move? Why did they stop moving? Where did the money go? Where did the volume go? Why did it continue to go even after I sold? ASK ASK ASK. The more you are able to answer questions and create the historical data for yourself, the higher your probability of trading that same pattern in the future.

Catalyst…. All great moves need a reason to run. They may not all be a direct PR but there is always something that is tugging. The law of the conservation of energy clearly states: energy can neither be created nor destroyed; rather, it can only be transformed or transferred from one form to another. Find the transfer! Find the reason! THINK

In closing, no one system is great than the other. The main point is find your SYSTEM. Do the work to figure out what works. The moment you find this, the moment your trading will start to change. Don’t really solely on others, but find mastery and belief in your trading ability.