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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

More from TraderLion 🦁

TraderLion \U0001f981
TraderLion 🦁
@TraderLion_
The best traders in the world have made millions from one setup.

The setup? A breakout from a base.

But what do these bases have in common & what should you be looking for?

Here are the most important characteristics of a proper base, broken down one by one 🧵👇

By the end of this thread, you will:

✅Be able to identify the main characteristics of a proper base
✅Understand subtle clues of accumulation
✅Have access to 20+ real world examples

Let's get started! 👇

Proper bases all have the following characteristics:

▪️ Shallow Base Depths
▪️ Prior Uptrend of at least 20%
▪️ Early Stage Base
▪️ Daily & Weekly Accumulation Signatures
▪️ Relative Strength Periods

Follow along as we break down each aspect in greater detail below 👍

#1: Shallow Base Depths

Base depth is a key component of a proper base.

We measure a base's depth from the absolute peak to the absolute low.

Institutions are the major base builders in the market, & the shallower the base, the stronger the institutional hold in the name.

Here are some good criteria to keep in mind when analyzing bases:

< 20-30% off the highs = best
< 30-40% off the highs = good
< 40-50% off the highs = acceptable under certain circumstances
> 50%+ off the highs = avoid (with exception to some younger IPO names)
TRADERLION , ALL
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.
TRADERLION
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TraderLion
TraderLion
@TraderLion_
An Introduction to CANSLIM (Thread)

CANSLIM is a growth stock investing strategy developed by William O’Neil.

O'Neil was the founder of Investor's Business Daily and in 1964 he became the youngest person to ever purchase a seat on the New York Stock Exchange at age 30.


O’Neil's success came from studying the greatest winning stocks of all time and the methods of the most successful investors of all time including Bernard Baruch, Jesse Livermore, Gerald M. Loeb, Jack Dreyfus, and Nicolas Darvas


From this research, he distilled 7 key characteristics which showed up again and again in the top-performing stocks of every market cycle.

Together they form the acronym CANSLIM

Current Quarterly Earnings Growth
Annual Earnings Growth
New Products/Services/Management/Price Highs
Supply and Demand
Leader Versus Laggard
Institutional Sponsorship
Market Direction
TRADERLION
TraderLion
TraderLion
@TraderLion_
How To Find Market Leaders During Corrections (Thread)

Market pullbacks and corrections are a natural process that may feel painful at first, but they set the stage for new true market leaders to emerge.

During a pullback the first thing you want to do is protect your capital and manage risk. You should rank your holdings and cut the lowest quality first.

How to grade your holdings with @mwebster1971

Protecting your capital and naturally transitioning to higher cash levels keeps you focused and objective, allowing you to begin the fun part, the treasure hunt for the next uptrend’s golden opportunities.

During a correction, institutions take the market weakness as an opportunity to add to their highest conviction holdings. This support will show up in the price charts as stocks with promise buck the overall market downtrend.
ALL
TraderLion
TraderLion
@TraderLion_
What is the biggest challenge that traders face?

It's not the market. It's not the competition. The biggest challenge traders face is themselves.

That's why we've put together this list of five short lessons that will help you overcome your next trading obstacle:

1. You need to be disciplined enough to wait for the perfect opportunity.

Successful Traders:

❌ They don't force trades or take unnecessary risks.

✅ They wait patiently for the market to provide them with a high-probability setup before entering a trade.

2. You need to only take calculated risks.

Successful Traders:

❌ They don't take irrational risks or blindly follow the herd.

✅ They make calculated decisions based on their analysis and plan.

3. You must be able to accept losses.

Successful Traders:

❌ They don't try to avoid losses at all costs.

✅ They know that losses are a part of trading and accept them as part of the process.

4. You need to have a defined edge.

Successful Traders:

❌ They don't trade based on hope.

✅ They have a defined edge that they execute repeatedly.
TRADERLION

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TraderLion
TraderLion
@TraderLion_
What to look for when the market gets volatile. (Thread)

↓

The first thing you should be on the lookout for is tight price action in leadership names. During corrective markets, liquidity is low as market participants take a step back due to uncertainty.

This leads to larger price ranges and therefore tight action is a sign that liquidity is returning to the markets.

As certainty returns, price action becomes tighter and more rational.

This type of action is much easier to operate in as a retail trader since it allows you to define risk which is always first and foremost in any trading strategy.

Another key thing to look for is multiple RS days within specific stocks and groups.

RS ( Relative Strength) Days occur when a stock outperforms the market and other stocks during a corrective period.

If you need a refresher on Relative Strength techniques check out this blog post:
ALL , TRADERLION
Richard Moglen \U0001f4fd\ufe0f\U0001f981\U0001f6a2
Richard Moglen 📽️🦁🚢...
@RichardMoglen
A brief introduction to trading/investing for beginners and why you should start right now (Thread)

A goal of mine is to introduce as many people as possible, especially my own age, to sound methods of how to trade/invest for their futures. Despite the stock market being open to all, in practice, not everyone is taught the value of it or how to use it to build wealth over time

This thread will hopefully help remove the knowledge barrier of how to get started. It will cover briefly:

Why you should invest (Start now!)
What even is stock?
Roth IRAs versus Traditional IRAs
ETFs+ Mutual Funds
How to buy/sell individual stocks.
Types of Investing/Trading

Now before we go further, I am not a financial advisor, I am speaking from my own experience and there are significant risks with the stock market so please consult a financial professional before getting involved. Alright let’s get to it.

First, why should you get involved and start ASAP, like tomorrow. The simple answer is compound interest and time.
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_
The market’s best investors have made millions from the simple saying:

“Buy right, sit tight”

Sounds simple - but what does “buying right” even mean?

Use TraderLion's 10-Step Ultimate Guide to buying right 👇

By the end of this thread, you'll know how to:

1. Build an objective list of buy criteria
2. Have 10+ real world examples to study
3. Increase your win rate.
4. Increase your profitability

Let's dive in!

Buy Rule #1: The General market must be in an uptrend.

3 out of every 4 stocks follow the market trend both to the upside and to the downside.

This means that if you are buying a breakout in a downtrend, it already has a 75% chance of failing!

It doesn't matter if the stock is in a leading group with an impressive RS line and strong fundamental story.

At the end of the day, market direction is the MOST important factor!

Here's an excerpt from How To Make Money In Stocks by stock market legend William O'Neil:


Here's another video by @richardmoglen that will help you determine if the stock market is in a downtrend:

https://t.co/shD5OjkP6s

Let's move on to #2.
TRADERLION
TraderLion \U0001f981
TraderLion 🦁
@TraderLion_
8 Chart Patterns by William O'Neil

Let's break them down one by one🧵


Perhaps the most famous basing pattern found in the market is the Cup with Handle pattern.

✅ Chart resembles a cup with a handle
✅ Base length: Minimum 7 weeks
✅ Base depth: 20-30%
✅ Buy point: high of the handle
✅ Handle length: 1 week
✅ Handle depth: no more than 15%


There is also a Cup without Handle pattern.

✅ Chart is just a cup, no handle
✅ Base length: Minimum 7 weeks
✅ Base depth: 20-30%
✅ Buy point: High of left side of cup


The Double Bottom chart pattern is also very common & is one of the most powerful patterns to learn.

✅ Base resembles a "W"
✅ Base length: Min. 7 weeks
✅ Base depth: < 40%
✅ Buy point: middle of "W"
✅ Second low must undercut first low


The Flat Base pattern is another well known structure coined by William O'Neil.

✅ Base resembles a shallow consolidation
✅ Prior uptrend must be greater than 30%
✅ Base length: Minimum of 5 weeks
✅ Base depth: < 15%
✅ Buy point: High of structure
TRADERLION , ALL , CHARTS

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What Happened To Bhakt Prahlad after Hiranyakashipu Vadh
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Prahlada became the mighty king of the Asuras after Shri Narsimha killed Hiranyakashipu. Prahlada was even more powerful than his father, Hiranyakashipu ever was. He enjoyed the love and respect of his subjects.


By virtue of his good behaviour, Prahlada conquered the three worlds easily and Indra ran away from the Heavens. Indra then deceived Prahlada into giving him the power of his behaviour and Prahlada lost control of the three worlds.


Asuras grew angry at the Devas for taking advantage of their King's virtuous behaviour and invaded the heavens. The Devas, afraid of the Asuras, enlisted the help of human Kings such as Yayati, Raji and Kakutstha and defeated them.

Prahlada attacked the gods and defeated Indra in battle, forcing the King of the Gods to run for his life. Indra sought help of Lord Vishnu. Infused with his power, Indra defeated Prahlada. The latter understood that Vishnu was helping Indra in battle and he withdrew his forces.


Prahlada first gave his kingdom to Andhaka, but the latter was defeated by Shiva. So Prahlada gave it to his son Virochana and undertook a Tirtha Yatra.
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Anu Satheesh
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Krishna and the False Vasudeva
#story

Paundraka Vasudeva was a King mentioned in Bhagavatha Purana. He was friend of Jarasandha, the king of Magadha. He believed that he is Vasudeva Krishna.
Once Paundraka Vasudeva received a letter from Shishupala, stating that he wanted


protection from Krishna, because it was Rukmini's wedding and Shishupala thought Krishna would take away Rukmini.

Paundraka Vasudeva agreed and went to Vidarbha, the Kingdom of Shishupala, but failed to provide protection as Krishna took Rukmini away. Paundraka Vasudeva was


feeling sad. His Minister's cheered him.
They said that Paundraka Vasudeva was the real Vasudeva and Krishna is a cheater. Everyone started to believe this and soon Paundraka Vasudeva soon started to taunt Krishna by saying that Krishna was a cheater.
Paundraka Vasudeva then


challenged Krishna to a war and Krishna said that he would give Paundraka his Chakra and Gadha. Paundraka suspected some foul play and went to King of Kashi for his protection. In battlefield, Krishna came in front of Paundraka, and said that he would throw his Chakra and Gadha


to him. But, Krishna's throw was perfect that the Gadha hurled him to the Ground and the Chakra killed him.
Krishna soon killed king of Kashi with an arrow and his head went flying to Kashi.
Thus Victorious Krishna was recieved by people of Dwaraka.
Hare Krishna 🙏🕉🙏
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Sri Mridanga Saileswari Temple Muzhakkunnu, Kannur KERALA

The temple is established by Parasurama and it is one among 108 Durga temples.
Devi will answer all the prayers of her devotees who pray to her with utmost devotion lighting the ghee deepam.


It is the family diety of Kerala Varma Pazhassi Raja.
Devi is present in three forms Kali, Saraswati and Lakshmi.

Legend...👇
Once a Mridungam ( musical instrument) shaped rock fell from heaven here.
@SriramKannan77


Devi originated in the form of Mridangam and Parasurama captivated the essence of Devi into a Vigraham. Vigraham is made of Panchaloham.
Kathakali, an art form of Kerala originated here.


Temple Vigraham was stolen 3-4 times, but because of power of Devi all the attempts were failure. Police records says that Whenever the thieves try to steal, they lose their senses, and they will be in a confused state. So they will abandon the idol.
🕉
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👨‍💻 Last resume I sent to a startup one year ago, sharing with you to get ideas:

- Forget what you don't have, make your strength bold
- Pick one work experience and explain what you did in detail w/ bullet points
- Write it towards the role you apply
- Give social proof

/thread


"But I got no work experience..."

Make a open source lib, make a small side project for yourself, do freelance work, ask friends to work with them, no friends? Find friends on Github, and Twitter.

Bonus points:

- Show you care about the company: I used the company's brand font and gradient for in the resume for my name and "Thank You" note.
- Don't list 15 things and libraries you worked with, pick the most related ones to the role you're applying.
-🙅‍♂️"copy cover letter"

"I got no firends, no work"

One practical way is to reach out to conferences and offer to make their website for free. But make sure to do it good. You'll get:

- a project for portfolio
- new friends
- work experience
- learnt new stuff
- new thing for Twitter bio

If you don't even have the skills yet, why not try your chance for @LambdaSchool? No? @freeCodeCamp. Still not? Pick something from here and learn https://t.co/7NPS1zbLTi
You'll feel very overwhelmed, no escape, just acknowledge it and keep pushing.
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Catch me if you can @Mitesh_Engr

Time for a🧵
Mitesh Sir's EXPIRY Option Selling 101:
• What to look for?
• Strike Selection & Ratios
• SL mgmt
• Avoiding freezes
• Monthy Expiry
• Event days
• How he would have traded last expiry?

In collaboration with @AdityaTodmal


Edward de Bono says intelligence is like a🚗 Automobile

“A powerful car may be driven badly. A less powerful car may be driven well. The skill of the car driver determines how the power of the car is used.”


What @Mitesh_Engr Sir looks at for Expiry Trading:

• Technicals of BNF
• Individual Heavyweight stocks of BNF
• Support/Resistance of BNF on weekly TF
• Also has Superb SL management
• When it comes to adjustments, he is always on toes


How to Select Strikes to Sell?

• You can't sell based on premium
• Follow only trend
• Price action is best to sell on expiry day
• Never wait for the options to go to zero


Using Ratios to Sell:

• If BNF is in a range then strangles
• If breakout/ breakdown from a range then directional
• Selling 70/30 or 80/20 ratios
• 2 examples on how he used ratios
ALL , MITESH PATEL OPTIONS STRAT , MITESH PATEL EXPIRY GUIDE