How to build a ‘hot-rod’ trading system

Trading is a very personal endeavour.

What suits one person perfectly might torment and irritate another because it doesn’t fit their trading ‘personality’.

But when you can chop bits from one system and slot them straight into another there’s no need to reinvent the wheel. In fact, there’s no reason why you can’t build your own approach directly from the tried and tested parts already available to you.

Think of it like customising a car to fit your particular needs…

You might lower the suspension or tune the engine if you’re a bit of a speed demon. No need to completely swap the vehicle, just upgrade and change the parts that’ll give you the qualities you want.

Now it might sound a bit daunting to start chopping and changing parts of a trading system. But it shouldn’t. Not when you remember there are only really 5 ‘moving parts’ for you to consider.

So if you fancy trying your hand at tuning up a trading system, or crossbreeding two systems together, consider these 5 building blocks.

Think which might give you the quickest upgrade in performance and then run some tests. And be creative! There’s nothing you can ‘break’ here, and your early test results will soon tell you whether your idea is worth pursuing further.

Test your borrowed ideas one at a time and see what you can come up with.

5 components of ‘hot-rod’ trading systems

1) What to trade: Think about the instrument (the markets themselves) and the vehicle you’re using (this means the way you are accessing the market – e.g. spread betting, binary options, futures contracts etc). A new and efficient ‘crossbred’ system might be created by simply applying a Forex strategy to a stock index market like the FTSE100, or by adapting a stock trading system to suit binary options trading.

2) How much to trade: This is the part of your system that tells you how much to buy and sell on each trade. If you’re looking for accelerated growth to a small account you might tweak your money management settings using the settings from more aggressive approaches. And if you’re already trading a sizeable account you might usher-in a more conservative methodology to protect and preserve your existing trading bank.

3) When to enter a trade: This is the part of your system that gives you the green light to go – your entry signal. The world is your oyster here. No matter what your timeframe of trading you’ll be able to borrow and test ideas from almost any other trading system. Scalpers might steal a Swing trader’s approach and there’s absolutely nothing to stop a long term position trader looking to the day trader’s toolbox for ideas. Don’t let preconceived prejudices stop you discovering a new little gem.

4) When to exit a winning trade: Exit strategy on winning trades is probably one of most neglected areas of trading yet one that can make a big difference to your results. This is definitely an area to spend some time on. See what new ideas you can plunder and introduce into your campaigns from other trading systems.

5) When to exit a losing trade: Don’t be afraid of the losing trade – they are an essential part of any systemised approach. Be very wary of any system that seems to shrug them aside as if they don’t matter or that they won’t happen – that’s NOT a good approach to model! But otherwise feel free to test and appraise any idea you come across. There are some really clever ways of applying trailing stop losses I’m currently testing myself. And you know what? I didn’t invent a single one of them!

So get your lab apron on and get experimenting. Let me know what new cunning new formulas you manage to cook-up.

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