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8 Steps to building a Trading System (Thread)

🧵

 Individuals must keep their personality, lifestyle, and risk appetite at the forefront of their minds when building their trading system.

In this thread we will break down the components of a successful trading system for consistent returns in the markets 👇
Components of a Successful Trading System

1. Market
2. Time Frame
3. Edges
4. Entry Tactics
5. Setups
6. Rules & Risk Management
7. Journaling
8. Post Trade Analysis
Let's discuss the first component, The Market.

The financial markets are divided into the following 👇

1. Equity
2. Bond
3. Futures
4. Forex
5. Commodity

Each market requires a different set of knowledge, skill, experience, and know-how.
Once you know which type of Market you want to trade, you must now choose your Time Frame.

Day Trade
Swing Trade
Position Trade
Combination of all the above

Time Frame often aligns with a traders personality, lifestyle, goals. 🧠
Day Traders ⌛

Often times day traders use a lower time frame to buy/sell in their respective market. This usually corresponds with an intraday chart (1 minute, 5 minute, 15 minute, etc) all the way up to a daily chart.
The appeal of day trading is that by executing all of your trades during the session, you remove any overnight risk.

You may miss out on bigger moves, but it may be easier to sleep at night knowing you have no money at risk.
Swing Traders 📆

Swing traders will primarily focus on the daily/weekly charts, accepting the overnight risk & play for a bigger move over the span of a couple days to a couple of weeks.

Executions usually occur on a lower time frame with the longer term trend in mind.
Position Traders 🧘

Position Traders are also using the daily/weekly timeframes, but add in the monthly as well.

These traders are looking to hold on to their positions for multiple weeks to months.
Combination of the 3

When identifying your style in the markets, it is normal to try out different time frames & see what works best for your personality.

The only thing that matters in the market is extracting an income over a large sample size, how you do it is up to you.
We can extract income from the markets over a large sample size only if we are acting using the next requirement in a trading system: Edge.

According to Mark Douglas, "An edge is nothing more than an indication of a higher probability of one thing happening over another."
So, how do we get an Edge in the market?

This comes from repetitive study of patterns seen in the biggest winners from the market and the timeframe that you are trading.

You have to understand the common themes that each winner displayed before they run up in price.
An example of an Edge in the equity markets is CANSLIM, a system created by William O'Neil.

WON was able to create and build CANSLIM by looking at the Fundamentals & Technicals of the strongest winning stocks of his time, building a set of concrete rules to catch these moves.
If you want to learn more about CANSLIM, take a look at our thread here 👇https://t.co/wm5dux912o
Once we have an edge, we then identify a Setup. with that edge.

To do this, we need to have defined criteria that allows us to manage our risk so that if the trade goes against us, we don't lose all of our capital.

Managing risk is the most important part of a Setup.
Risk Management

This is the most important part of any system in any market. Without proper risk management, you are susceptible to unnecessary drawdowns leading to emotional swings.
What does proper risk management look like?

There are many different ways to approach this area of a system, but the most simplistic form of defining your risk parameters looks like this:

- Rules
- Proper position sizing
- Risk/reward ratio
Rules

Rules act as guardrails to make sure your behaviors in the market are contained and repeatable.

Trading is an emotional game. Rules help prevent you from damaging yourself when things may feel out of control.
Examples of rules:

3 losses in a row = a multi-day break.

During a Market Downtrend (below 21ema) = look for shorts more than longs

Taking x amount of days off per year to BUILD mental capital.

No big losses = having a MAX, non-negotiable stop loss for every single trade.
When creating your rule set, you want to make sure it is not too restrictive. We want to be able to operate in a flow state & having too many rules may prevent this from happening
Proper Position Sizing

We want to make sure our exposure is large enough to make significant progress in our overall account but also small enough to keep losses in control when we are stopped out

Traders are wrong more than they are right, so position sizing correctly is key.
There are many ways to determine your position sizing, but a simple one to make sure you don't lose all of your account in one trade is to risk 0.5-1% of your equity per trade as a MAX stop loss.

You would have to lose on 10-20 trades in a row to lose 10% of your account.
A 10% drawdown sounds scary, but it is important to note that we still live to fight another day with this method.

On e of the major key to super-performance is to never let your account value fall too far from all time highs
Risk Reward Ratio

You always want to make sure your gains are at least 2-3x your losses. If you are risking $100 on a loser, you want to be making $200-300 on your winners.

Following these parameters means you can be right only 1/3 times and still not lose money.
It is also important to learn when to both ramp up or scale back your exposure in response to the current market environment.

This skill comes with experience but is an important part to super performance.
Journaling

When trading any market, it is essential for you to understand how your emotions impact your overall trading

To accurately track this and learn from your emotions, you need to write down what is going on in your brain during the trading session.
Some easy things to keep track of are:

- Feelings premarket
- Intraday executions, with reasoning and edge defined
- Emotional swings during the day
- Grading your trading execution post market.
By continuing to build a database of these points, you will be able to connect your current state in the market to past states. This will allow you to perform better over time as your brain builds pathways, leading to better execution and decision making.
The last part of any successful trading system is Post Trade Analysis.

PTA helps you see what is working vs. what is not working.

It acts as a report card.

This is when we need to be the most honest with ourselves in our trading.
Think about how athletes study their best and worst games. This allows them to identify tweaks and improvements that need to be made

In may be painful to go through past losses but sometimes looking back on your past trades is the only way to catch flaws in your decision making.
How to do PTA:

- Tracking win rate on a per edge basis (is your edge working more than others)
- Avg gain/loss
- Batting average
- How you handle losing streaks (do they get worse, do you stop trading, etc.)

The outcome of PTA should be an improved system overall.
Regardless of your strategy or timeframe your system must incorporate the 8 components we have described above.

What component do you think is the most important?

Let us know your thoughts below 👇
If you enjoyed this thread make sure to follow @TraderLion_ and retweet 🔁this quoted tweet

https://t.co/C7fXaDuNmF

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TraderLion
TraderLion
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What to do if you are not trading well. (Thread)

Impatience and instant success are built into our minds from the get-go. We want instant wins and instant rewards.

This has as much to do with our psychological build-up as it does with the society we live in.

In this thread, we will cover:

What to do if you are not trading well.
How to stop the drawdowns when no progress is being made.
How to have a systematic process that protects you from yourself.

So what is it that drives us?

We all want the market to reward us for our hard work, the effort, and time we put into it.

We want input to equal output.

However, there is no such thing as input = output in trading.

Trading is about consistency, persistence, and hard work without the certainty of any reward.
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TraderLion \U0001f981
TraderLion 🦁
@TraderLion_
3 Simple Steps to Quickly Grow a Small Trading Account

--- Thread 🧵 ---

1️⃣ Define a Repeatable Edge

A basis of any successful trading system is having an edge over a series of trades.

Without a well studied edge, you cannot succeed in the market.

Example of edges:

Trend system
* Trading during the power trend
* Trading stocks that are in uptrends
* Trading GROUPS that are in uptrends

High Volume Edges
* Highest Volume Ever (HVE)
* Highest Volume in > 1 Year (HV1)
* Highest Volume Since IPO (HVIPO)

2️⃣ Define Entry Tactics from that Edge

Once you have an edge, you need an entry tactic.

Entry tactics are repeatable and definable. You should know your entry and exit points before ever placing a trade.

Examples of entry tactics:

Trend system
🟢 Enter on two closes above a KMA
🔴 Exit on two closes below a KMA

High Volume Edge
📊 High Volume Close
📊 High Volume Support

Edges & Entry tactics have to be repeated CONSISTENTLY to reduce randomness when trading a small account.
TRADERLION
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TraderLion \U0001f981
TraderLion 🦁
@TraderLion_
There are thousands upon thousands of stocks that you can trade.

But how do you narrow it down to the best of the best?

In this thread, we'll highlight the 3 most important steps you need to take to create a Focus List (& how you can apply these lessons immediately)

👇🧵

By the end of this thread, you'll be able to:

✅ Scan quickly and effectively to build a Universe List
✅ Narrow it down further to a Weekly Focus List
✅ Find the best stocks possible to trade

It's that simple so let's jump in.

· Scan quickly and effectively to build a Universe List

🔎 Pullbacks
🔎 Breakouts
🔎 High Volume
🔎 Fundamentals
🔎 Momentum Edges

Here are the criteria you can use in your favorite scanning platform for each:

Pullbacks Edge 🚨:
· Above your favorite Key Moving Average Scan (> 10EMA, 21EMA, 50DMA)
· % Off Highs Scan (< 20%)
· Reverse Pocket Pivot Scan

Breakouts Edge 📈:
· 52 Week High Scan
· Volume > 2x Avg. Scan
· Price > 5% on Session Scan
TRADERLION , TRADING GUIDES , TRADER LION
TraderLion \U0001f981
TraderLion 🦁
@TraderLion_
Building a Daily & Weekly Routine Workflow to Increase Profitability

--- Thread 🧵 ---

The stock market is one of the most complex systems in the world, with parts that change every single second.

As individual investors, we need to bring a level of consistency to our system that can prevent us from feeling overwhelmed.

Routines offer this consistency.

As a retail trader/investor, you must have a set routine for your daily review and weekend review.

This is non-negotiable if you want to outperform the market or increase your current levels of profitability.

In your Daily Routine, you should review the following 👇

🔹 General Markets
🔹 Current Positions
🔹 Emotional Review
🔹 Focus List
🔹 Summary


General Markets (10 min)

The goal is to identify if the wind is at our backs.

You should note whether there has been a recent cluster of accumulation/distribution, where price is with respect to the KMAs, & the index's relationship to the highs.
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10 Essential Trading Principles (Thread)

⬇️

1️⃣ Trade Plan:

The first thing before a position is initiated is a clear plan must be in place detailing specific entry areas, their associated sell stops, and potential profit-taking zones.

Below are some factors to consider when crafting your trade plan:

✅ Individual Goals
✅ Personal Progress
✅ Current Market Environment
✅ The many fundamental and technical factors relevant to each individual stock, its sector, industry group, and its overall strength relative to the rest of its industry.

2️⃣ Risk Management:

This is the golden key to consistent success in the stock market. Yes, it is even more important than stock selection.

Bernard Baruch, a close friend of Livermore said even being right 3 or 4x out of 10 should yield a person a fortune if he cuts his losses.

3️⃣ Annual & Quarterly Earnings:

Look for companies with:

✅ Annual earnings that are positive and have been increasing YoY for at least 3 years.
✅ At least 25% QoQ earnings/sales growth for a minimum of 3 quarters.

These are early indicators a stock may be ready to explode.
ALL , TRADERLION

More from Traderlion

TraderLion \U0001f981
TraderLion 🦁
@TraderLion_
The best traders take advantage of alternate entries to build positions before a stock becomes obvious to the crowd.

Here are 7 lesser known Chart Patterns that are a MUST in any trader's tool box 🧵👇


#1: Alternate Pivots

Alternate pivots offer earlier entries when compared to regular pivots.

These pivots are important because:

▪️ They offer the same if not better R/R then regular pivots
▪️ Less volatility around these areas
▪️ Allow you to start positions EARLIER


#2: High Volume Close (HVC)

The HVC is created from a big volume gap up.

The close of this day is an important point for institutions to support.

If institutions are in supporting this point, price should be very responsive - making it a great, lower risk entry.


#3: Pivot Retest

The pivot retest setup happens when price retests the prior support/resistance point & then rallies back through.

This can be a powerful setup as it acts as a 'shakeout' and reverses higher with stronger hands holding the name.


#4: In The Wick Setup

We are looking for stocks that open in the wick of the prior session's bar.

The buy trigger is when price moves through the prior day's high.

The stop loss should be the low of the current day.
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Greg Duncan \U0001f6a2
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Why Patience is so Important as a Trader

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Have you ever felt like everyone around you is making money and you're not?

That's how I felt today after the market closed, while I was reflecting on my week.

In fact, over the past three months I've felt like this on multiple occasions!

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Richard Moglen \U0001f4fd\ufe0f\U0001f981\U0001f6a2
Richard Moglen 📽️🦁🚢...
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Focusing on stocks exhibiting strong Relative Strength is one of the keys to achieving superior returns. This is one of the core ideas of #CANSLIM

In one sentence showing RS means outperforming other stocks both during market uptrends and downtrends.

In this thread we will cover examples, how to spot it, and how to use it to make sure you are in the top stocks.

If you want to outperform the indexes, logic says you have to be invested in stocks doing the same.

First Some Basic Terminology:

RS Rating: @IBDinvestors Proprietary measure of RS scored 1-99. Stocks with an RS rating of 80 have outperformed 80% of stocks over the past year.

RS Line: The Line plotted by dividing each day’s stock price/ price of the SPX.


The value of the RS line itself does not mean anything, but the trend of this line is very important.

-Note RSI (Relative strength index) is something completely unrelated to the concept of this thread.
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TraderLion
TraderLion
@TraderLion_
How to identify the next Market Leaders (Thread)

After a basing/corrective period in the market, new merchandise will start to emerge and show itself as the market is setting up for another uptrend.

Some leaders from the previous run may continue their moves, but often it's the new leaders which will provide the most alpha.

So keep an open mind and search for the stocks that are standing out from the crowd with the strongest combination of superior price + volume action and fundamentals.

Here is how to find these next leaders:

First, market leaders by definition lead the market. They will often be making new price and relative strength highs as the market starts moving up from a potential bottom.

Keep an eye on Relative Strength Lines especially. A Relative Strength New High Before Price is a key Leadership Blueprint. For instance, $TSLA showed this characteristic before advancing 350% in 2020

The RS Line is calculated by the Price of the stock/ SPX
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TraderLion
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Often when the market is extended, we can get a quick reversal to the downside with little or no warning.

There are two main ways these days can go.

We can have a steady selling day with key stocks losing pivots or we can retrace, reverse and then finish strong.

When the market starts showing signs of accelerating distribution during the day, and leading stocks are suddenly down 5+ %, emotions and panic can quickly cause you to ignore rules and make non-systematic decisions.

Below we will cover how to prepare for this event and manage it objectively.

It’s key to understand that emotion can never be eliminated from your trading, that isn’t the goal and is not achievable.
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She joined the freedom struggle in the present-day Northeast India. Today, her struggle is lost in history as most of her countrymen wouldn’t even have heard her name. B'coz our history textbooks tell us that only Mahatma Gandhi &Pandit Nehru got India its Independence.


At 16 yrs of age, this valiant girl was sentenced to life imprisonment for leading a movement to drive out the colonial rulers from Manipur and Nagaland. Nevertheless, she was released in 1947 after India’s independence and was given the title ,"Rani of Nagas".


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Hence the name-Sri for Spider, kaal for snake n hasti for elephant.

Shiv bhakt Kanappa is said to have plucked his own eye to put it on the lingam here when he saw blood oozing from the eye on the lingam
This place is the ultimate location for Rahu Kethu Sarpa Dosha Nivarana.
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