The Ultimate Stock Trading System

The search for the best trading system — whether you are trading stocks, futures, forex, options, or all of the above — has been attempted by many professional and would-be traders for many decades, even before online trading.

The general theory has always been that the market is not 100% efficient and by looking at technical indicators, or some combination of price and volume patterns, a profitable system can be discovered. Some even use more advanced methods such as intra-market correlation, neural networks, and wavelets to look beyond the usual OHLC, volume, open interest and option volume indicators.

While some prefer trend-following methods with larger sized (but fewer) wins, others prefer more short-term strategies such as swing trading where profit and loss are about equal, but with a higher frequency of wins.


The #1 Rule to System Trading Success is to find a method of trading that fits your personality.

For example, if you can’t stand large drawdowns, do not use trend-following methods. If you can’t stand exiting early and watching profits “you could’ve had” continue to climb, don’t trade for short-term wins. If you can’t stand large losses, find a system with automated stop loss parameters within your tolerance.

Defining My Ultimate Trading System Parameters

For me, personally, I enjoy a little bit of all types of trading. I like the simplicity of trend-following and momentum methods, yet I also believe in the sophistication of cycle theory and wavelets when applied with a probabilistic perspective.

Coming from a sports betting background, I want a system that wins 55-60% of the time. I psychology need to win more than 50%. I also want my winners to be larger than my losers. It doesn’t have to be 2x or 3x like some trend-following systems, but the average win should be 20-50% larger than the average loss. This way, even if I am only right 50% of the time, I am still profitable.

I don’t like to be in the market for long periods of time, believing in getting out when I am “proven wrong” to minimize in-market exposure. I like fixed exit rules so I can place my OCO (“one cancels other”) order and not worry about tracking the market if I need to step away from the monitor.

Finally, I hate drawdowns. I do not like to see too many consecutive losses or too large of a loss because it might “break my will” to trade, or at the very least start me second guessing my system. So I will have a hard stop — I call it the “abort rule” — after 5 consecutive losses or total drawdown > 20%.

So, in summary…

My Ultimate Trading System Must Do The Following

  • Must win > 55% of all trades.
  • Average profit must be > average loss, at least 20% greater but preferably 50% greater.
  • Fixed exit rules that can be entered at time of entry, without the need to track the market during the course of the trade.
  • System abort rule after 5 consecutive losses or 20% drawdown.
  • A system that minimizes “time in the market” to minimize exposure to macro events.

Stay tuned for actual systems I use that meet these criteria!

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