Building a Trading System Part 1: The Building Blocks

“All I need is one big trade man, that’s it. Just ride it up, make a million and retire.”

Sound like you? I hope not. Plenty of people think this way. Not one of them is wealthy. Sure, those big trades happen. But nobody talks about the hundreds of small wins and even more losses that came first. So before we get into this article series, I want you to stop and ask yourself a question: am I willing to put hundreds of hours in and take hundreds of losses in order to pull money out of the market? If the answer is no, that’s cool. It’s not for everyone. But if you’re willing to put in the time and the effort and the stress and the damage to your psyche (because that will happen), this series of articles will guide you.

What’s in a strategy?

Trading systems fall into one of three categories:

  • Discretionary systems
  • Semi-discretionary systems
  • Automated systems

A discretionary system means that the trader decides all criteria (usually in the context of certain patterns on a chart). These are difficult to qualify and backtest. We will talk about them in this series, but not until much later.

A semi-discretionary system relies on indicators or specific triggers. They reduce the amount of human input required by setting criteria automatically, but a human must press the buy or sell buttons. These are the systems we will be focusing on, as they are the easiest for new traders to learn and create.

A fully automated system can be created from a semi-discretionary system and requires no human intervention. They can also include other triggers that humans have difficulty in determining and often encompass much more than chart data. We will not be covering these, as I have little experience in this area.

So where do we start? First, we need to define what we mean by “system”. A trading system is a set of rules, but rules are pointless if no one follows them. Without your rules, you are lost. You will not be able to consistently make money. They are your lifeline to profit. So what do the rules cover?

Every system MUST cover these four bases

  • Profit-taking criteria
  • Loss-taking criteria
  • Risk criteria

Each of these work in tandem to ensure that over a large sample of trades, you will make money, keep it and avoid blowing up your account. The rest of this article will explain each of these parts in a bit more detail.

Entry criteria

Profit-taking criteria

Loss-taking criteria

Risk criteria

I will show you how to find and create each of these parameters for yourself

Self-discipline is what separates a trader from a wannabe. The self discipline to build and maintain your system, to trust it and follow the rules you’ve set for yourself religiously. If you’ve got that, you can trade.

Join me in part two as we start building our first system.

This is the first in a series of articles on building your trading system. If you learned anything or found this article valuable, please leave it some claps (up to 50!), share it on Twitter and other social media and leave a comment! It really helps with visibility. For more like this, follow me here and on twitter!

I write about trading, investing and cryptocurrency. Contact