Trading system is a set of rules that tell you when to initiate or exit a trade. A good system will be multifaceted and will address entry and exit conditions, risk control, and cash management. No matter how complex the system is, it must be easy to implement and execute.
Trading systems should ideally eliminate a lot of the guesswork that goes into finding good stocks that are ready to take off. It should also help you determine stop loss and exit strategies. In theory, if you find the right system, your gains will outweigh your losses and the net result will be a steadily growing profit in your stock account. Notice that I said that your GAINS will OUTWEIGH your LOSSES. This means that, of course, you will have losses but, if you have a good stop loss and exit strategy in place, overall you will come out ahead. All of this in the perfect world, which the Stock Market isn't always a part of.
The biggest enemies of any trader are fear and greed. Gamblers call fear "playing with scared money" and that's a good phrase for the investor to keep in mind as well. If you are playing with scared money, that means that you cannot afford to lose that money and you are going to make knee-jerk decisions based upon that fear. That's a surefire recipe for failure.
Greed, on the other hand, comes into play when you are riding a stock up and you ignore the warning signs that tell you it's time to sell. You continue hanging on in anticipation of even more profits and then, before you know it, the bottom falls out and you end up selling into a falling price.
Trading system automatically eliminates these two emotions. Once you pick a system, and stick to it, all emotions are eliminated. All you have to do is follow it and do what you are supposed to do when they tells you to do it.
How many different Trading Systems are there?
There are as many different kinds as market traders. And, while their methods differ, the stated end result is always to predict what is going to happen to particular shares in particular companies, by analyzing, or measuring, or monitoring some indicator or group of indicators. In the end, it either has you buying on strength and selling on weakness, or buying on weakness and selling on strength. You can do well with either approach. The key is to pick whatever feels right to you and then stick with it.
Reproduced off www.stock-trading-advice.com