Evaluating A Stock Trading System
By Ultimate Trading
Whats The Best Stock Trading System For You?
Once youve decided your trading objective, and what market youll focus
on, youll need to develop a stock trading system. Hundreds of different
stock trading systems already exist, and you can certainly learn about
or purchase one. Or you can develop your own. Whats important is that
you can objectively evaluate the stock trading system to ensure it meets
your needs and that it performs well. Heres how you can objectively evaluate
a stock trading system:
- Does It Preserve My Capital?
Capital preservation is absolutely critical. If you dont have money to
trade, you cant make profits. Its as simple as that. Your stock trading
system must preserve your capital or youll fail.
- Historical Performance Is Critical.
Why? Because your goal is to make profits over the long-term and evaluating
past performance is the only way to determine if a stock trading system,
or if your stock trading system, is successful. Its not important how
successful a stock trading system might be; whats important is how successful
- Success Is Determined By Real Profits, Not By Percentages Alone.
Of course, your percentage of gain is important, but only if it measures
your true profits or losses. Money in your pocket is the only real measurement
of success. Heres how you should calculate success: at the end of the
day, week, month, or year, do you have more actual money than you started
with? By actual, we mean money that is liquid and can be accessed immediately.
And if you do have more, what is your percentage gain? Thats the only
true measure of success. The only way to truly show profit or loss is
if percentage gains (or losses) are based on the amount of money invested.
- The Stock Trading System Should Be Mechanical In Nature.
What does that mean? A good stock trading system must be automatic in
nature, and should allow you to make decisions based on rules and parameters,
not on emotion. A mechanical stock trading system is not one thats based
on buying every IPO. A mechanical stock trading system could be to buy
stocks with a maximum price earnings ratio two weeks before the ex-dividend
date, with a 5% stop loss set - if youve determined that historical performance
makes that an overall winning strategy.
- The Trading Should Always Take Place In Liquid Markets.
An effective stock trading system should be aimed at liquid markets where
sufficient daily volume exists to easily and consistently execute orders.
- A Good Stock Trading System Will Work In Up Or Down Markets.
(If it doesnt, you may be sitting on the sidelines during market run-ups
if your stock trading system only works during a bear market.) It should
have the potential to generate successful trading performance in all market
conditions; bull, bear, and sideways trading range.
- The Maximum Drawdown Should Fit Your Personal Requirements & Situation.
An inherent characteristic of investing in general - and of stock trading
system in particular - is the maximum drawdown potential in account value
from the most recent peak. No stock trading system is perfect; youll
make some trades that are great, and some that will be bad. If the potential
loss on bad trades in your stock trading system exceeds your tolerance
for risk, and puts your capital in jeopardy, then its not the right stock
trading system for you.
- The Stock Trading System Fits The Capital You Have Available To Invest.
You have to be able to feel comfortable with your stock trading system,
and if most of your capital is at risk, or the risk levels are too high
for your comfort, youll make emotional decisions instead of logical ones.
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to do to supercharge your current stock trading system!
one ingredient you literally "Drop" into your
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to use “secret” money management techniques
to minimize your risk.
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