Why Stock Market Systems Are Much More Than Just an Indicator

A trading system is more than a method, indicator, oscillator, or pattern. It is a compilation of all of these and much more. It consists of multiple sets of procedures or rules. Like a pilot, an efficient trader has checklists for every phase of the trading day: risk management rules, pre market scanning procedures, pre market watch list management, potential trade planning and logging, play sheets for entry criteria, trade management and tracking, trading log for closed trades, trading diary complete with snapshots, financial planning and projection, bookkeeping and taxes. It is a system of systems, complete with rules and checklists for each component. And don’t forget pre market, market, and post market news scanning. You don’t want to be caught with your guard down.

Understandably, traders want a low risk, high reward, signal system that has been fully optimized. They want a proven play book, like the coach of an all star football team. The problem with a perfect, mechanical signal system is that markets and market participants change with each of the four phases of the market cycle. Traders need to adjust their biases and trading systems to these four phases : market bottom, bull market, market top, and bear market.

Secondly, nothing can beat the human mind for gathering and analyzing evidence that may either support a given entry signal or conflict with it. Additional information to consider before pulling the trigger are: time of day, TICK, TRIN, VIX, yesterday’s close, Sector Analysis, multiple time frame analysis, market and sector leaders, bonds, currencies, commodities, and impending news announcements.

Finally, even if all of this evidence is considered, but no regard is given to well planned money management and trade management systems, don’t even turn the computer on. The point here is for you to not get caught up chasing “Signal System” rainbows like I did. Educate yourself on ALL of these components and create your own personalized, complete, Trading System.

Entry signals and techniques are a dime a dozen. Some are simple, some are very complex. It doesn’t have to be complicated. Just line up the evidence in favor of your trading ideas, follow your procedures, and the odds will be in your favor. There are only odds, no guarantees.