Trading in the stock markets is something which everyone can jump into, but not everyone can remain profitable consistently. So, have you ever thought how expert traders on profits from the markets consistently, year after year?

Earning consistent profits from the markets requires a lot of discipline. This is difficult since as human beings we are prone to taking emotional decisions while trading in the markets, which ultimately lead to losses. To avoid this, all the expert traders do the following:

• They do system based trading and
• Follow sound money management principles.

Today we are going to understand what system based trading is, and how it can help you to become a better trader. Experts defines a trading system as “a group of specific parameters that combine to create buy and sell signals for a given security”. It is a robust set of rules and principles which helps you to identify entry and exit points in the live markets.

There are two types of trading systems that traders generally follow. Some use the techniques of fundamental analysis for arriving at trading signals, while others use technical analysis for the same. However, we recommend following a combination of the two. This hybrid approach will increase your chances of success while doing system based trading.

The importance of system based trading:

• Focus: One thing that baffles most new traders is the huge volume of news, economic data and other information related to the market that they get. It becomes extremely difficult to filter the news based on the importance, authenticity and timeliness. Sticking to system based trading will help you to avoid getting baffled with unnecessary information and you will be able to act upon information that is most important. This will increase your chances of earning handsome profits.

• Discipline: The primary reason why many traders and investors lose money in the market serious because they lose control of their emotions while trading. When the markets move adversely they feel afraid of losing money and in other cases, they end up being greedy for more profits. Both of these have a deeply negative effect on trading. Using a system based trading will enable you to state discipline while trading in the markets. While creating the trading system do a thorough research and set up strict rules. These rules will make you enter and exit the markets at the right time without feeling emotional. Hence you will stay protected from both fear and greed, the two primary psychological reasons why most traders lose money in the markets.

• Stay within limits: Along with the entry and exit rules, money management rules are also set up in a trading system. This tells the system how much of exposure can be taken at any given point in time. Since the trading system is devoid of any emotion, it will never go beyond that limit. This will help you to avoid over trading, which is a big enemy of every trader.

• Identify the right opportunities: One common mistake that rookie traders make is that they try to trade in every opportunity, thereby making their entire trading book very chaotic. They feel puzzled when they identify multiple trading opportunities and try to enter into most of them hoping to earn good profits. Using system based trading can help you to avoid this problem. Since the trading system will follow restrict set of rules that you will set up for identifying the right stocks to invest in, it will be able to choose the best trading opportunity for you. For example, if it identifies 5 different trading opportunities by applying these rules, it will also be able to predict how much profits you can expect to earn from each of these opportunities. Thereafter, it will select the best ones that give you the best returns at the lowest risk. Hence, you will be able to execute only those dates very will expect high returns.

• Constant monitoring and exit: After you have entered the trade, the trading system will monitor the positions on a real-time basis and exit the position when the markets behave adversely. This will help you to avoid situations where profitable trades turn into loss-making ones within minutes due to the markets becoming extremely volatile.

Tips for staying profitable:

• Decide on theright rules: As mentioned earlier, system based trading will require you to come up with the set of rules which the system will use while trading in the live markets. Hence it is very important that you choose the best rules that will increase your odds of earning profits. You can go for either a fundamental analysis based trading or technical analysis based rules. However, we feel that a mix of both will the best for ensuring that you choose the right stocks and also trade at the right time.

• Test the strategiesthoroughly before going live: Before you start doing system based trading in the live markets ensure that you test your strategies and rules thoroughly. You can do this by either back-testing the strategies using past data or do paper trading in the markets without putting in actual money. Make the necessary changes based on results of this testing before using the system in the live markets. This will help you to avoid mistakes that can cost you loads of money in the market in the form of trading losses.

•    Optimise: No trading strategy or trading system that you create is going to work forever. It is important that you constantly monitor and make changes to the trading system according to how the markets are behaving. This will enable you to trade with the latest strategies and make profits consistently from the markets if your trading system works properly.

Create a solid system based trading plan for yourself using these tips and ensure your profitability and sustainability in the markets for the long term.

FinIdeas has already design and develop system for intraday trading, Short Term Trading & Long Term Investment. Our Index Long Term Strategy is safe & sound investment plan for 3 to 5 years. All these strategies are executed by algorithm based trading software so that we can get a speedy entry at an accurate price. You can know more about it at www.finideas.com