Throughout the course of this thread, we have discussed the importance of creating, testing, and using discipline to execute your strategy. In this post, I will detail a key component of trading systems, which has received very little attention.
For your trading system to be a success, it really has to make sense. If you are unable to describe your method on the back of a business card to the average person in less than 30 seconds, your system is probably nonsense. Take for example the following situation in which you are asked to explain your system to a potential investor:
Situation 1 The Moving Average Crossover
So, what is your trading method?
I trade a moving average crossover. Basically, I have a theory that price increases and decreases in relatively predictable trends, so I try to be long when price is increasing on average and be short when price is decreasing on average. I have found that this method allows me to almost always be positioned with the trend. I have backtested it, and it has proven profitable across nearly every financial market for the past 150 years.
Situation 2 The Fibonacci Gann Master
So, what is your trading method?
I trade Fibonacci retracements, expansions and Gann angles. I have a theory that there is a hidden order to the markets and price moves in the same mathematical pattern that a few things in nature exhibit. Basically, its super complex but dont worry, Ive read a book or two. If youre interested, Ill allow you to pay me for my analysis
but be warned, I am not actually making money using it. Also, I havent actually tested it, so
Where would you entrust a $100,000,000 investment?
Throughout my life, I have found that the true masters of fields are those who are able to express advanced concepts in terms that the common person can understand. Trading is no different. Without fail, the most successful traders I have met have been those who are able to take their decades of experience and logically present their method in less than 30 seconds to the listening ear.
The serious trader should ask himself if his method actually makes sense.