How can you distil your past trading approaches into a new trading system?

If you’ve been trading before with different methods, how can you take that and design a trading system out of it so that you can become more consistent?

I’ve done this quite a few times. The trick is to look at how you’ve made your trading decisions and isolate the different types of rules that you’ve used as much as possible. So, you might have had one strategy where you just followed this indicator. Maybe it was a moving average bought on a crossover just above the moving average, and you sold when it crossed below the moving average.

Identify the individual strategies you used and codify them into your backtesting software. Then, put them into Amibroker and backtest them. Don’t try and take all your strategies and mush them into one trading system and hope that it works. Take all the rules and indicators that you’ve used in the past, and then try them out in combination to see which combinations are profitable. You usually find that if you’re a break-even trader, most of the strategies or indicators you’ve used in the past are probably losing you money. And there might be one or two ideas that do make you money consistently.

You need to separate all the approaches into different ideas, test them all systematically, throw away the bulk that doesn’t work and keep the rules that do work and then turn that into viable trading systems. If you’re not sure yet, spend some time analyzing your trade log. You should be recording every trade, particularly if you’re a discretionary trader. Analyze how you made the decisions and characterize those decisions about, “Okay, I’ll use these indicators and this exit, and I held for this long.” Characterize them and then turn that into a system, set of rules, and test it to see if it’s got an edge.

If it’s profitable, you can refine that, optimize it and make it better. Test some extra filters. If it doesn’t make money at the beginning, throw that approach away. Please don’t use it again and find different approaches/strategies you’ve used in the past that make money and focus on those. You’ve got to get clear on how you’re making the decisions, taking those rules, codifying them, and testing them. That’s how you take a discretionary portfolio and systemize it.