If you ask ChatGPT, “What is the most risky business?”, its answers may vary. Trading’s position in the list ranges from first to seventh. However, if you specify that the business depends solely on external factors and the manager is sufficiently qualified, then in terms of risk, trading drops to positions 7–10. This is precisely the activity where success primarily depends on your qualifications and minimally on external factors.
I return to the question: what should a trading system be like? This time, I propose to consider ChatGPT’s approach. We will compare it with your rules, and I will supplement my comments with materials available online. I would appreciate it if you could make your corrections in the comments to the omitted points.
So, according to ChatGPT, a trading system includes:
Components of a Trading System
Goals and Objectives
Clearly defined financial goals.
Timeframes for achieving them.
Market Analysis
Market overview: visualization of possible price movements.
Fundamental analysis: study of macroeconomic factors.
Technical analysis: use of charts, indicators, patterns.
Entry and Exit Signals
Clear rules for opening positions.
Indicators for determining exit timing.
Risk Management
Establishing acceptable loss levels.
Use of stop-loss orders.
Limiting position sizes in trades.
Capital Management
Planning capital allocation for trades.
Defining profit targets and approaches to achieve them.
Strategies for increasing volumes in successful trades.
Monitoring and Control
Keeping a trading journal for trade analysis.
Regular review and adjustment of the system.
Psychological Aspect
Developing an action plan for stress situations.
Emotional discipline and control.
Testing and Optimization
Historical testing of the system on data.
Testing in the real market with minimal volumes.
These components help create a comprehensive and resilient system capable of operating in various market conditions.
Now let’s analyze the system. I will rate each point on a 10-point scale.
Evaluation of Components:
Goals and Objectives
This point is absent in reality, as with the emergence of a new pattern, all goals change. The timing of a new pattern’s appearance is unknown.
Rating: 0 points.
Market Analysis
The term “market overview” is not clearly explained anywhere, so this point gets 0 points. There is plenty of literature on fundamental and technical analysis with diverse interpretations. The only downside is the absence of the time factor and the possibility of price movement without the specified patterns, so two points for each.
Rating: 4 points.
Entry and Exit Signals
An abundance of signals, lack of clear statistics, overly general formulation of “risk management.”
For signals: 4 points.
For risk management: 0 points.
Total: 4 points.
Risk Management
Stop-loss orders are set, but without clear indication of their placement and loss sizes.
For stop orders: 2 points.
For position size limitation: 2 points.
For capital management: 0 points.
Total: 4 points.
Capital Management
No examples of building risk management; monitoring and control lack clear basis.
Rating: 0 points.
Monitoring and Control
System adjustment pertains only to technical parameters of indicators. Psychology often boils down to lack of knowledge, though there’s plenty of literature on this topic.
For system adjustment: 2 points.
For psychology: 5 points.
Total: 7 points.
Psychological Aspect
Personally, I believe a trader’s task is to avoid stress. However, I acknowledge that this point is well elaborated.
Rating: 10 points.
Testing and Optimization
Backtesting is present; testing with small volumes is possible. Minus: lack of market illiquidity modeling.
Rating: 8 points.
Result:
Total score: 0 + 4 + 4 + 4 + 0 + 7 + 10 + 8 = 37. This is less than half, indicating that technical aspects are worth studying, but the foundation lies in capital management. Is it any wonder why people who have taken courses cannot trade successfully in the market? Therefore, check your training programs; all the techniques can be found in literature, with a maximum book cost of around $50. But the key to success lies in planning.
Conclusion:
Technical knowledge is important and can be gleaned from numerous books. Mastering them will take from six months to two years. A mentor at this stage is not essential.
However, there is a significant gap in trading planning and position management. Such skills are difficult to model in backtesting and will have to be tested in practice.
The journey is made by walking. Good luck!
Best regards!
