What is important in trading? Everyone's answer is different, some say mentality, some say capital management, and no one can really determine the true answer. However, the importance of execution is something that most investors need to pay attention to.

No matter how accurate your analysis is, how perfect your trading system is, or how strong your capital management ability is, without execution, you still cannot become a successful trader.

There are many factors that affect execution, such as confidence in the trading system, personal character, and the influence of surrounding noise.

For example, a trend-following trader encounters a long-term drawdown, the account win rate begins to decrease, and losses start to accumulate. As a result, when the number of consecutive losses reaches a certain amount, they begin to hesitate, reduce their position when a trading opportunity arises, or simply do not trade at all. In the end, they find that this trade was a profitable one that could have resulted in a significant profit.

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Or, after a series of analyses, you hold a long position in a certain variety, but you are influenced by various bearish news on the internet or the opinions of colleagues and friends around you, giving up your own views and not persisting, and finally, the trade that could have been profitable turns into a loss.

Essentially, these situations occur because investors cannot overcome greed and fear. The market is constantly tempting investors, and every trade will always have a more favorable price for you. After each cut, it will also give you a better exit price. The pursuit of perfection is a human nature. Therefore, greed and fear begin to dominate the minds of investors, and those with weak execution begin to hesitate before trading, becoming indecisive. As a result, execution is completely forgotten, and investors get lost on the road to pursuing perfect trades. To avoid this situation, some issues need to be resolved.

01. Do not pursue perfect trades

All trades have flaws, do not pursue buying at the lowest point and selling at the highest point. If you can get your share in each wave of similar market trends, you are successful. Understanding this, the impact of market random fluctuations on you will be much smaller, and you can focus on your profit part without paying attention to those more favorable but ungraspable opportunities, and your orders will be more decisive.

For example, your trading method is to grasp trend opportunities, but do not expect to buy at the lowest point and sell at the highest point. You just need to enter when the market has completed the bottom and started to rise, and sell when the market rises and falls to a certain position. As long as the trend is large enough, your profits are still considerable. The remaining profit part is the profit part of the bottom-fishing and top-touching trading method. The market is fair, even if they really get more profits than you, then the risks they face in bottom-fishing and top-touching are also much greater than yours.So, all you need to do is to decisively implement your approach, secure the profits that belong to you, and execute your risk control plan. From a long-term perspective, the likelihood of you making a profit is very high.

02. Trust in Your Trading System

There is no trading method with a 100% win rate. If you have a system that has been tested and you firmly believe it can be profitable, then you should act according to the system's signals. For example, after a fundamental analysis, you have concluded that cotton prices will rise, and your system has given a signal to enter a long position. However, there is a lot of noise around you, with some saying that there will be a better entry point for cotton, and others saying that cotton is facing technical resistance, etc. Even if all these statements are correct, for you, they are all noise. Even if your entry point is not good, you will still get the profits that belong to you.

Therefore, when your trading system issues entry and exit signals, you should decisively enter and leave the market. Do not harbor the hope of a better position. Because from a long-term perspective, the cost you pay for each time you go against the system is much higher than the cost you pay for trading according to the system.

03. Persistence is an Essential Quality of Trading

When facing difficulties, human nature is to seek better methods to adapt to the environment. But this does not apply to trading.

Many traders, when a trend-following system begins to lose money and retract, will start to seek changes to avoid losses. They start to study the swing system, especially after it brings them some profits, they will keep changing between swings and trends in order to make their system adapt to the current environment. This seems right and sounds reasonable. However, they have overlooked an essence. That is, a mature trading system must have flaws. When it's time to lose money, it should lose money, but it should lose less, rather than trying to make it profitable. Even if you successfully change it once or twice and make a profit, in the long run, you will inevitably get lost, lost in the greed for victory. Changing the system arbitrarily is also a manifestation of insufficient execution.

This point is most evident in the field of algorithmic trading. Algorithmic trading is developing faster and faster in China, but the profits still conform to the 80/20 rule. Why is that? Some well-known investment advisors with beautiful capital curves, the models they use are not even as good as the models written by ordinary investors, but they have made profits, while ordinary investors are losing money. The most essential reason is persistence.

Of course, this is not to say that trading does not need to change. You certainly need to continuously optimize your system according to the market, the characteristics of the varieties, and your personal personality, making it more and more integrated with you, and more and more perfect. Suppose you have a very good trading method, you believe in it very much, and you know that you can achieve stable profits by persisting. But if this method, when opening and closing positions, will make you feel anxious and entangled, then this method is not suitable for your personality. Letting an impulsive person adopt the last minute of the day to confirm the signal to place an order is a torment for him.

Execution is the foundation of the existence of strategy and the basis of success. It's like going to war, no matter how brave your soldiers are, and how well your tactics are in place, if you can't execute, it's all empty talk.The Objectives of a Trading System

When you are crafting your trading system, you need to achieve two very important objectives:

1. Your system should be able to identify trends as early as possible.

2. Your system should prevent you from suffering losses in both directions.

If your trading system can achieve the above two points, your chances of success will increase.

The reason these objectives are difficult to achieve is that they are contradictory to each other.

If you have a system that is characterized by quickly catching trends, then you are very likely to catch false trends.

On the other hand, if your system emphasizes avoiding losses, you may act later in trades or miss many trades.

When establishing a mechanical system, your task is to find a compromise between these two objectives. Try to determine the trend as soon as possible while distinguishing between false and true trends.

Six Steps to Establish a Trading SystemFrom a long-term perspective, a good trading system will potentially help you make a lot of money.

Step 1: Time Frame

When formulating a trading system, the first thing you need to determine is what type of trader you are.

Are you a day trader or a swing trader? Do you look at charts daily, weekly, monthly, or annually? How long do you intend to hold your positions?

This will help you determine the time frame you use when trading. Even if you look at charts with multiple time frame perspectives, this will decide the primary time frame you use to identify trading signals.

Step 2: Find Indicators to Help You Identify New Trends

Since your goal is to identify trends as early as possible, we will use indicators that can achieve this goal. Moving averages are one of the most popular indicators used by traders to determine trends.

Use two moving averages (one fast and one slow), and then start waiting until the faster one crosses or moves below the slower one. This is the basis of the "moving average crossover" system.

The simplest form of the moving average crossover system is the fastest way to identify new trends. It is also the simplest method for discovering new trends.Of course, traders have many other methods to identify trends, but the moving average is one of the easiest tools to use.

Step 3: Find indicators to help you determine this trend

The second goal of our trading system is to avoid suffering from double losses, that is, we do not want to be trapped in the wrong trend. Our method to avoid double losses is to use other indicators to confirm whether the signal of a new trend is true or false when we find it.

There are many indicators that can be used to confirm trends, but we prefer the Smoothed Moving Average, Stochastic Oscillator, and Relative Strength Index. As you become more familiar with various indicators, you can find the ones you like and then integrate them into your system.

Step 4: Define your risk

When creating a trading system, it is very important to determine the size of the loss you can afford for each trade. Not many people are willing to discuss the issue of losses, but in fact, good traders will think about how much loss they are willing to bear before considering how much money they can make.

The size of the loss you are willing to bear will be different from others. You need to determine how much breathing space your trade requires, and do not take too much risk in a single trade. In later lessons, you will learn about money management. Money management has a great impact on how much risk you take in each trade.

Step 5: Define entry and exit points

After determining the size of the loss you are willing to bear in the trade, the next step is to find out where to enter and exit to gain the most benefits.

Some people like to enter the trade immediately when their indicators match and issue good signals, even if this candlestick has not closed yet. While other traders will wait until this candlestick is closed before entering the trade.A trader stated that he believes it is best to enter the market after the candlestick closes. He has entered the market multiple times when the candlestick has not yet closed and all indicators are in alignment, only to find out at the close that the trade is completely opposite to his expectations.

This is just a matter of trading style. Some traders are more aggressive, and eventually, you will discover what kind of trader you are.

Regarding exiting the trade, you have several options. You can move your stop loss, setting it to move X points in your favor if the price moves X points.

Another method is to set a fixed target and exit when the price reaches the target. How you calculate your target depends on you. Some people choose support and resistance levels as their targets.

There are also those who set the same number of points for each trade. Regardless of how you calculate your target, make sure you stick to it. Do not exit early, no matter what happens. Stick to your system! After all, you created it.

Another way to exit is if you have a set of criteria, and when they are met, you exit. For example, if your indicator retracts to a certain level, you exit.

Step 6: Write down the rules of your trading system and follow them.

It is a trait that traders must have, so you must act according to the trading system. If you do not follow the rules, your trading system is useless, so remember to stick to the principles.

There is no trading system that always makes a profit; gains and losses are normal for a trading system. Only a trading system with a positive expected value in the long run makes sense.

Last night, I chatted with my student about trading; at the end, I told him: The root of Chinese philosophy lies in the I Ching, the I Ching - Dao De Jing - Analects of Confucius, these three classic works are the starting point of ancient Chinese philosophy; the essence of the I Ching is just two words: Yin and Yang. When Yang reaches its peak, it turns to Yin, and when Yin reaches its peak, it turns to Yang.The principle that extremes meet is the most fundamental law of all things in the world; trading systems are no exception to this rule.

Any trading system will have times when it fails; one reason is the change in market trends; another reason is that only the decline of the trading system leads to the majority of traders losing money, (the majority of people losing money is the essence of the market).

We won't talk about the first reason, everyone should understand it, let's talk about the second reason.

Let's think about it, traders who make a profit from the trading system must be overjoyed;

But in trading, you will inevitably encounter a period of losses due to the market not cooperating;

At this time, what will most traders think?

Is the trading system still effective? If I hadn't made the last trade, it would have been better;

If I had changed the last two trades like this, it would have been better;

Next trade may still be wrong, reduce the position;

I've made so many mistakes, the next trade might be right, increase the position.Having lost so much before, let's take the profit this time and leave first, just in case we can't reach the target profit-taking position, right?

Most traders will gradually lose confidence due to the periodic decline of the trading system and want to change it; they hope that the trading system can keep up with the next market trend. In fact, we know that changing the trading system means the beginning of new losses and also signifies the failure of the previous trading system.

Have you ever experienced the above psychological changes? Surely you have, haven't you?

Therefore: the decline of the trading system leads to losses, losses lead to traders changing the trading system, and this in turn leads to trading failure.

We have worked hard to formulate and improve the trading system, and we will inevitably encounter periodic declines and losses. At this time, we must clearly understand that it is not only our trading system that will have periodic declines and losses, but all trading systems are like this; and the purpose of the trading system's decline is to let the vast majority of traders fail in the decline.

Having a trading system does not necessarily guarantee stable profits, but to achieve stable profits, you must first have a trading system. As time goes by in the stock market, everyone will gradually form their own set of stock trading methods. This set of stock trading methods is actually the prototype of the trading system, but it may only have a few components of the trading system, and more needs to be perfected by everyone.