How to upgrade the 5 ‘building blocks’ of any trading system

How to upgrade the 5 ‘building blocks’ of any trading system

Trading strategies are polarising objects…

An approach that suits one person down to the ground might totally torment and irritate another because it doesn’t fit their own unique trading ‘personality’.

But when you can chop bits from one strategy and slot them straight into another there’s no need to suffer any longer. 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.

Even from strategies and systems you’ve already cast aside in frustration!

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

You might lower the suspension, tune-up the engine, or do something as simple as fit a roof rack.

There’s 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 let me refresh your memory…

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

Think which might give you the quickest upgrade in performance you need and then run some tests. There’s nothing to break; your test results will soon tell you whether your idea is worth pursuing or if it’s time to go back to the drawing board.

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

5 building blocks for crossbred trading systems

1) What to trade: Think about the instrument (the markets themselves) and the vehicle you’re using (this is the way you’re accessing the market – e.g. spread betting, standard forex, 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 investing system to suit shorter term spread betting.

2) How much to trade: This is the part of your system that tells you how much to buy and sell, or risk, 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 timeframe you’re trading you’ll be able to borrow and test ideas from almost any other trading system. Scalpers might ethically 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. Be aware that preconceived prejudices might be stopping you from 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 to 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 is 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 swap some things around in your strategies and test what happens. Even just out of curiosity.

You never know what wondrous winning combination of components you might stumble upon!

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