Trading System: Finding a Profitable Model that Suits You

The trading system is essentially a set of operating rules, similar to a human-computer interaction system or a conditioned reflex mechanism. It includes a complete set of signal rules for entry, exit, stop loss, and take profit.

There are some common misconceptions about trading systems: some people believe that having a trading system guarantees profitability; some believe that the existing systems are not good enough to achieve excess returns; and others believe that there is a magical system that ensures profits without losses.

In fact, there is no trading system that guarantees stable profits forever. Even with an excellent system, users need to have strong execution skills. Everyone needs to find a trading system that suits them, rather than pursuing a standardized "good" system.

The trading system is similar to military guiding principles, operating at a strategic level. It cannot guarantee victory in every battle, but it can avoid disastrous defeats and preserve opportunities. "Operational thinking" and "operational strategy" belong to the campaign level, while specific trading actions are at the tactical level.

The core metric for evaluating a trading system is the "profit-loss ratio," which is the average profit amount divided by the average loss amount. A profit-loss ratio of at least 2.3 is considered passing, while above 5 is considered excellent. It is recommended to calculate the profit-loss ratio of the system you have been using long-term to assess its effectiveness.

Before designing a trading system, it is necessary to clarify investment objectives, expected return rates, risk tolerance, and so on. A complete system should include elements such as cycle judgment, operational thinking, selection of targets, timing, buying and selling rules, capital management, and risk control.

In a bull market, selecting targets is particularly important. Large fund managers rely more on selecting targets rather than timing the market. When choosing targets, factors such as liquidity, themes, and on-chain data should be considered.

Timing and trading rules need to be adjusted flexibly according to market conditions, but buying should be based on technical buy points, while selling requires some foresight. Capital management includes profit protection, position opening strategies, and also needs to consider leverage usage. Risk control is the last line of defense to ensure investment safety.

The core of the trading system is to provide clear entry and exit signals, standardizing trading behavior. Even something as simple as a moving average strategy can help avoid emotional trading. For ordinary investors, the key is to find an efficient system that is neither overly simple nor overly complex.

The Granville Eight Principles is a classic simple trading system based on moving averages to determine buying and selling opportunities. However, in practical application, adjustments are needed based on different markets.