The strategies of a successful trader

This strategy is made by Fred, a successful trader with a millionaire in his account

I’ve never been a very good discretionary trader. I’d usually start off by making money, but then make way too many mistakes and end up with mediocre results. My personality is much better suited for mechanical trading systems where I do the R&D, but the computer pulls the trigger. Mechanical means objective: If 10 people follow the same rules, they should achieve the same results. A 100% mechanical approach increases the odds that past performance can be replicated in the future. It offers us three main benefits:

• We can backtest ideas before trading them. A computer allows us to test ideas on historical data rather than on real cash. Seeing how a system would have performed in the past allows us to make better decisions when it really counts—in the present.
• We can be more objective and less emotional. Analysis, where we have no

money at risk, is easy; trading is stressful. Why not let the computer pull the trigger for us? It is free of human emotion and will do exactly what we instructed it to do when we developed our system.

• We can cover more markets, trade more systems, and analyze more timeframes each day. A computer can work faster and longer without losing its concentration.

Whenever I develop a system, I have a five-step plan:

1. Start with a concept.
2. Turn it into a set of objective rules.
3. Visually check out the signals on the charts.
4. Formally test the system with a computer.
5. Evaluate the results.

Developing a trading system is part art, part science, and part common sense. My goal is not to develop a system that achieves the highest returns using historical data, but to formulate a sound concept that has performed reasonably well in the past and can be expected to continue reasonably well in the future.

Our money management firm follows most futures markets worldwide and we currently trade 19 of them: foreign currencies, interest rates, energies, precious metals, grains, oilseeds, softs, industrials, and equities. We simultaneously use between two and eight trend-following trading systems, designed to catch intermediate and long-term moves. Each is based on a logical concept and tested in real-time with our own money. In determining the suitability of a system we look first at its impact on our overall equity curve and its risk-adjusted returns.

Trading systems have helped me improve my performance and made me a successful trader. They forced me to do my homework before making a trade, provided a disciplined framework, and enabled me to increase my level of diversification.

With lots of hard work and dedication, anyone can build a successful trading system. It is not easy, but it is certainly within reach. As with most things in life, what you get out of this effort will be directly related to what you put into it.