In-depth Understanding of the Nature and Construction Methods of Trading Systems

The trading system is essentially a complete set of operational rules, similar to human-computer interaction systems in computers or reflex mechanisms in biology. It includes a series of detailed trading rules such as entry, exit, stop loss, and take profit.

However, there are many misunderstandings about trading systems. Some investors believe that simply having a trading system will lead to profits; others think that they need to constantly search for better systems; and some believe that there is a magical system that guarantees profits without losses.

In fact, there is no trading system in the world that can guarantee stable profits forever. Even with an excellent system, it does not mean that one can achieve consistent profitability. Users need to have strong execution capabilities and also find a system that suits them.

It is crucial to correctly understand the role of a trading system. It is similar to military guiding principles; it cannot guarantee victory every time, but it can avoid disastrous defeats and preserve opportunities. The trading system operates at a strategic level, while specific operations belong to the tactical level.

When evaluating a trading system, the most critical indicator is the "profit-loss ratio," which is the average profit divided by the average loss. The ideal profit-loss ratio should be no less than 2, with 3 being passing, 4 being good, and 5 being excellent. Systems with a ratio greater than 5 are extremely rare.

Before designing a trading system, it is necessary to clarify investment objectives, expected return rates, and risk tolerance. A complete system should include seven elements: cycle judgment, operational thinking, coin selection, timing, buy and sell rules, capital management, and risk control.

Cycle judgment helps to follow the trend and improve the success rate of operations. The operational mindset determines the strategy in different market conditions. Selecting coins is especially important in a bull market, considering factors such as circulation size, themes, and fundamentals.

Timing and trading rules are key to controlling risks and should have a certain degree of flexibility. Capital management includes regulations such as profit protection and leverage usage. Risk control is the last line of defense to ensure that mistakes are not made due to greed or luck.

The complexity of trading systems varies from person to person, with the key being efficiency. Taking the Granville's Eight Methods as an example, it provides simple and practical buy and sell signals based on moving averages, but may require adjustments in different markets.

In summary, building a trading system that suits oneself and strictly adhering to it is an important way to improve the success rate of trading.