Do you have a system?  Can you write it down as a series of steps that anyone would be able to follow?  If you cannot, then you probably don’t have a system.  System trading is an orderly and methodical method that governs the way you trade the market.  Your trading system may be very easy, or can be complex using several indicators, but what characterizes the system is that there is always one answer for any set of conditions.

While you can subscribe to one or more different experts, each of whom will run a system that they believe can best identify trading opportunities and provide you with recommendations, you can also develop your own system - given enough time, energy and information. How you get to the trading system that works for you is not so important as the fact that you have one.  A system is commonly developed by back testing various factors, usually with the help of sophisticated software which is readily available for the personal computer. While this results in a system which runs perfectly on past events, the hope is that some predictability in the way traders think and operate allows the system to also function adequately predicting the future.

The alternative to having a system is to operate by the seat of the pants, making trades based on instinct, gut feeling, vague recollections of a similar position, or using the magic eight ball. Whilst I’m not against intuition, or any other method in which you believe, it’s very hard to evaluate the effectiveness of such choices, and even more difficult to repeat them should they prove to be profitable. You may be lucky for a time, but if you wish to continue trading for a living you need to develop consistency and confidence in your selections.

From time to time you will run across traders who do not believe a system is necessary. Perhaps these people are hardwired to possess the necessary characteristics to always trade reliably, but this is not a common feature amongst normal people. You may have heard this before, but fear and greed are major market drivers, and, unless you have a plan to marginalize their effect, they can control almost everyone, usually to the individual’s detriment.

On the other hand, with a good trading system you will never be left wondering whether you should take your profit or let it run, or when would be a good time to enter or exit a trade. The system will tell you. In this way, you totally take out the effect of emotion, which can be so devastating to the beginning trader’s account.  I’m not saying that the system will tell you the best answers all the time, but properly developed system trading will give you a consistent result, which a good system should ensure is on the winning side. It is essential that you refine your system to the level that you trust it to work out well for you on average, and have confidence in it so that you are not tempted to circumvent it.  Without a system you are ultimately at the mercy of your emotions, and time and again this has been shown to be disastrous in trading.