The Essence and Design of Trading Systems

The trading system is essentially a set of operating rules, similar to a human-computer interaction system in computing or a conditioned reflex mechanism in biology. It is a collection of complete signal rules regarding entry, exit, stop-loss, and take-profit.

Many people misunderstand the role of trading systems. Some believe that having a system guarantees profits, some think that existing systems are not good enough and need better ones, while others believe in the existence of magical systems that ensure profits without losses. All of these views are somewhat misguided.

In fact, there is no trading system that can guarantee profits forever. Even with an excellent system, strong execution is necessary to make a profit. Everyone needs to find a system that suits them, rather than chasing the so-called "best" system.

The trading system is more like a military guiding ideology; it cannot guarantee victory every time, but it can avoid catastrophic failures and preserve opportunities. The system operates at a strategic level, while specific operations belong to the tactical level. Understanding the role and limitations of the system correctly is essential for better application.

The core metric for evaluating a trading system is the "profit-loss ratio," which is the average profit divided by the average loss. An ideal profit-loss ratio should be no less than 2, with 3 being passing, 4 being good, and 5 being excellent; systems scoring above 5 are extremely rare.

Before designing a trading system, it is necessary to clarify the investment objectives, expected return rates, and risk tolerance. A complete system should include the following elements:

1. Cycle Judgment: Understand the Market Trends
2. Operational Thinking: Determine Basic Strategies
3. Choose Coins: Select Potential Coins
4. Timing: Seize the opportunity to buy and sell
5. Trading Rules: Establish Entry and Exit Conditions
6. Capital Management: Reasonable Allocation of Funds
7. Risk Control: Set up stop-loss mechanisms, etc.

Cycle judgment is fundamental, and following the trend can improve the success rate. Operational thinking determines the overall strategy. Choosing coins is particularly important in a bull market, and frequent coin switching should be avoided. Timing and trading rules need flexibility and should not be too mechanical. Fund management includes regulations on profit protection and leverage usage. Risk control is the final safeguard, helping to maintain a calm mindset.

The complexity of trading systems varies from person to person, and the key lies in efficiency. Taking the Granville's Eight Methods as an example, it provides simple buy and sell signals based on moving averages, but in practical application, adjustments still need to be made according to the specific market.

Trading Operation Suggestions

1. Strictly follow system signals for trading operations.

2. Be patient when holding positions and wait for system signals when in cash.

3. Avoid arbitrary trading and overcome human weaknesses.

4. Choose the appropriate system complexity based on individual needs.

5. Regularly assess system performance and make optimization adjustments when necessary.

6. Maintain a calm mindset and avoid emotional trading.

7. Reasonably control positions and risks, and do not overly rely on a single system.

8. Continuous learning and improvement to enhance operational skills and market insight.