ga('send', 'pageview');

Monday, July 15, 2024

Stock Trading System

The dictionary defines a "system" as "an organized or established procedure" . Simply put then, a stock trading system could be described as an organized or established procedure for trading stock. Such a trading system is often also referred to as a "stock trading method" or a "stock trading strategy". A trading system can be a very simple set of rules. For instance you could have a trading system that buys on the market open and sell on the close of he market. There you have it, a simple trading system. I’m not suggesting that you trade this system as I just made it up for the purposes of illustration.

However you refer to it the objective of a stock trading system is make you a profitable stock trader. You want a system that will work to increase your account equity over time.

Having a trading system will also help to keep you more disciplined. This is extremely important in stock trading. Anyone who has traded for any length of time is familiar with the tendency to second guess your system. After all it is human nature to question the rules. In trading it’s best to follow your rules. If you find that you can’t follow your rule then it’s time to stop trading and get a set of rules that you can follow.

There are a number of different type of trading systems in use today. I’ll touch on a few of the more basic types here.

Stock Day Trading System

This type of system enters a trade and then exits that trade during the same trading day. Day trading systems became extremely popular starting in 1999 during the tech stock boom. Stocks displayed strong volatility during this period. This strong volatility created many profit opportunities because of the large daily moves of stocks. 

Day trading also became popular as trader looked to minimize their risk by not holding stock positions overnight.

Short Term Trading System or Swing Trading System

Short term trading systems can hold trades from a few days to a few weeks. Traders using this type of system are seeking higher profits per trade than those who day trade.

Long Term or Position Trading System

Long term trader are those who hold trades from a month to multiple numbers of years. Long term traders look to make higher profits per trade than either the day trader or the short term or swing trader. This type of system looks to ride a long term trend of a stock and is sometime referred to as a trend trading system.
Dow 30 Stocks Trading Systems

The trading systems metioned above can be used on a wide variety of stocks. There are trading systems designed to trade a specific stock or groups of stock such as Dow 30 stocks trading systems. This category trading systems trades only the stocks on that make up the Dow Jones Industrial Average.

Various stock trading systems appeal to different traders for a variety of reasons. Available capital and risk tolerance are just a few of the factors that can influence a traders decision to choose one type of trading system over another. Even when evaluation trading systems with the same ROI the trader must consider if the system is a good fit for his personality. After all, a trading system that is not a good fit for you will most likely be one that you will not trade or will trade without discipline. Neither of these choices will lead to long term profitability so make sure that you and your trading system are compatible.