Entry

Trading Systems - Why You Need One

Jan 7th, 2006 13:45
Markus Heitkoetter, http://www.rockwelltrading.com

Every minute more than 150 Million Dollars change hands in the 
electronic index futures markets like the e-mini S&P and e-mini NQ. 
You can win or lose thousands of dollars in a few minutes; the futures 
markets can make you rich in a few weeks or months or wipe out your 
account with no mercy.
If you want to compete in the “game of games” and play against the 
best traders in the world, then you need to get ready. Too many 
gamblers are entering the arena without any plan or strategy, 
completely unprepared, and that's why they lose.
Trading a system will dramatically increase your chances to succeed in 
trading, because it eliminates five of the top six reasons why 
unprepared traders fail.
Here are the top six reasons why traders fail,
and how a trading system eliminates them
Let's take a look at the reasons why traders lose money:
    1. Lack of a Trading Plan
    2. Lack of Discipline to Follow the Plan
    3. Failure to Control Emotions
    4. Failure to Accept and Limit Losses
    5. Lack of Commitment
    6. Over-Trading
By all means you have to avoid these mistakes if you want to win.
Here's how a trading system eliminates 5 of the 6 top reasons why 
traders fail:
Solution #1: Having a trading plan
    Having a trading system means having a pre-defined set of rules 
you have developed to guide your trading. Therefore you HAVE a trading 
plan, eliminating the No.1 cause for failure.
Solution #2: Following the trading plan
    The easiest way to follow a trading plan is to automate it. Almost 
every trading system can be automated, and you could let the computer 
trade for you. You won't have to worry about your discipline any 
longer, as the computer mechanically trades every setup for you.
Solution #3: Controlling emotions
    Trading with a system removes emotions from trading. If you don't 
have a strategy and you try to make decisions when the market is 
moving, you are liable to become emotionally attached to positions. 
You may experience panic and indecision when the market does not move 
in your favor, as you do not have a prepared response. That's when 
most traders lose their money. If you follow a system you will know 
what to do no matter what the market does.
Solution #4: Controlling your losses
    You probably have heard the saying “Let your profits run”. 
Unfortunately most traders let their losses run. A trading system will 
get you out of a position when the predefined stop is hit. Unless you 
override the system to “give the trade a little bit more room” it will 
stop the loss and therefore limit your losses.
Solution #5: Commitment
    You won't believe how many traders show a lack of commitment and 
therefore lose money. Lack of commitment means that they stop trading 
after the first loss, and don't give their system a chance to make 
back the money they lost. Trading is not a one-way street, and losses 
are part of our business. If you can't accept the fact that there will 
be losses, you shouldn't trade. Fortunately a trading system can help 
you to overcome this problem; an automated trading system continues 
trading according to the rules, and therefore adds much more 
consistency to your trading.
As you can see,
Five of the six top reasons why traders lose money in the markets are 
simply eliminated when you start trading with a system.
Without any guarantee, your chances of making money rise incredibly 
when starting with a profitable trading system.