Why Trading System Determines 99% of a Trader’s Success

Novice traders often trade without a proper system in place, relying on intuition or signals from unreliable sources. However, this unsystematic approach leads to gradual fund loss or even complete account liquidation. Only after experiencing the harsh realities of the cryptocurrency market, which is known for its volatility and susceptibility to market manipulations, do traders realize that consistent success requires a well-defined trading system and tested tactics and strategies.

What is a trading system?

A trading system is like the helm of a ship, which the captain skillfully steers through calm and stormy waters, navigating the correct course to avoid obstacles. Similarly, traders use a trading system to navigate the cryptocurrency market's ups and downs, which can be turbulent and unpredictable. Developing and using a successful trading system is the key to building consistent income and wealth through trading.

Professional traders are distinguished by their ability to create profitable trading systems that can weather any market condition. In contrast, novice traders often rely on intuition or unreliable signals, which can lead to financial losses. In the following sections, we will discuss how to create and master a successful trading system.

What are the key components of a trading system?

The trading system is essentially a set of rules and guidelines that dictate when and how a trader enters and exits positions in a specific market, such as the spot or margin market.

A successful and profitable trading system consists of several key components:

• Trading strategies (usually several, depending on the trader's experience and practical skills)
• Risk management and capital management systems

In addition, psychological resilience and self-discipline are also critical factors. Following trading system instructions consistently can be challenging but important. 

Let's break down each component individually.

How to choose a trading strategy

In most cases, every trading strategy includes methods and tools of technical analysis (TA) to forecast market movements, asset prices, and determine entry and exit points for positions. However, some decisions can be based on other approaches. 

It should be noted that there are many profitable strategies, but they still have losing trades. The main thing is for the profit from successful trades to outweigh the losses from unsuccessful ones – only under such conditions can a trader close a certain reporting period (month, quarter, etc.) “in the black.”

When choosing a trading strategy, it's important to consider how convenient and understandable it is for the trader, based on their chosen tactics and trading range (such as scalping, intraday, swing trading, etc.). 

In practice, a trader tests various trading strategies for a certain period to determine which one generates the highest profit. During this process, they identify which figures, patterns, signals, tools, and indicators work best and more accurately with their strategy, enabling them to open and close positions on time. All of this can be done manually, but also with specialized trading software.

The main principles of capital management

Profitable trading always involves risk management. The conditions for opening orders, in addition to the entry price, should determine the risk-to-reward ratio for each trade. Another rule is to keep emotions such as FOMO and greed under control, while also considering take-profit orders (TP). This approach should be a golden rule for any trade.

It is considered that the optimal risk-to-reward ratio is 1:3, but it's even better if this ratio is higher. However, common sense and testing results should guide this decision. Some strategies may offer few entry points with a 1:3 risk-to-reward ratio, while others provide many options with a 1:2 ratio that yield significant profits. The key thing is to avoid risking $1 to earn $1, as that is inherently a losing strategy.

Once the entry point is determined, the trade amount must be calculated correctly. Some traders base it on the maximum acceptable risk per trade, while others determine the amount based on the deposit volume (which usually shouldn't exceed 10%). These are just a few examples of calculations that can be used. 

Trader psychology

Only robots can trade on financial markets without emotions. Many institutional investors practice algorithmic trading using trading bots for this reason. People tend to experience fear or greed, excitement or apathy. They can be sick or have certain social problems, and unfortunately, this affects the quality of trading. 

Special practices help to control emotions by bringing fears to the conscious level and then allowing them to be overcome with rational thinking. It is also helpful to read books on psychology in trading, such as Peter Bernstein's “Against the Gods: The Remarkable Story of Risk”. There are already several dozen books available in this format, so you can choose the one that suits you best.

It's worth noting that a carefully conducted technical or fundamental analysis before opening a position, a properly placed stop-loss order, and a pre-calculated risk per trade can significantly reduce most traders' fear and allow for a calm trading experience.

The “One Good Trade” concept, described in the book by Wall Street trader Mike Bellafiore, also reduces emotional stress. It emphasizes that every trader's main goal is to achieve one successful trade, then another, and so on. 

In reality, each successful trade will only be possible through strict adherence to trading strategy, risk management, and money management rules. So don't ignore this information.