Create Your Own Trading System

A trading system is a set of rules that define when to enter, when to exit, and how much to risk. A good system is backtestable, simple to follow, and aligned with your personality. Avoid over-optimization.

Entry rules: what must be true before you open a trade? (e.g. RSI oversold, price at support, trend confirmed). Exit rules: when do you close? (e.g. take profit at 1:2, stop at structure, or trailing stop). Rules must be specific enough that you can code or backtest them.

Risk rules: how much to risk per trade (e.g. 1% of account), max daily loss, position sizing method. Use your risk rules on every trade. Never skip them because you 'feel strong' about a setup.

Backtest on historical data before trading live. Use out-of-sample data to avoid curve-fitting. Forward test on demo or small size before scaling up. A system that works in backtest but not in live trading often means over-optimization or unrealistic assumptions.

Over-optimization (curve-fitting) is when you tweak rules until backtest looks perfect. It usually fails live. Keep rules simple. Fewer parameters are better. If a system needs 10 conditions to work, it's probably over-fit.