Trading Essential 167

"You can't create a suitable system
without setting your personal goals."

Personal goals are the fundamental building blocks upon which a trader's system is constructed, so it would not be possible to create a system without setting them.

These goals, for return and risk, are the very first numbers needed from the trader during the system evaluation process.

What are the personal goals exactly?

Whatever system the trader decides to trade, he will have an upper limit for the level of risk he is prepared to run - no matter what the return might be.

Some traders are prepared to take high trading risks - by staking a large proportion of their capital on a trade - but these are in a minority among experienced traders.

Professional traders have ways of deciding the maximum drawdown level to which they will allow their account to go and of course this depends on their own personal attitude to risk. This drawdown level is their risk limit goal.

They also have a goal for the minimum % annual return they require in return for their risk limit.

How do these goals influence the trader's system?

The goals are used to determine what is known as the risk resonance of the system being investigated - which becomes the prime parameter needed to enable the remainder of the evaluation process to be completed.

The object of evaluation is to find out if the system is capable of satisfying all of the trader's requirements.

Above all, the trader will want to be convinced that he could comfortably delegate the system to his computer for day-to-day trading without being tempted to interfere.

It is not possible to create a suitable system without first setting your trading goals.

 

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