One common mistake that traders make is not following trading systems. Without an excellent system on paper, you are far more likely to trade based on guesses and hunches. Some traders feel that there is nothing wrong with this. Making trades based entirely on gut feeling however puts trading at the same level as games of luck. This is like saying that your success depends entirely on the whim of fate.

There are other disadvantages to not having a reliable system. Aside from allowing luck to take over your trading decisions, the lack of a plan can push you towards trading using your feelings. You could for instance, choose to make decisions based on what everyone else is doing because you don’t want to feel like you are losing on an opportunity. You could also start make mistakes in holding on or letting go of assets because you are afraid of losing money.

Which trading plan is best? The best system is one that can make you enter and exit trades based solely on logic. Before you can succeed with any plan however, you need to make the personal commitment to stick to your system regardless of how things turn out or regardless of whether you start winning or losing.

It’s not hard to make a promise to yourself. It’s entirely another story to keep it. You will most likely have more courage to keep to a trading plan if you know that it will work. Knowing in advance that you will have a high possibility of success will make making commitments easier for you.

The only way to test how well your strategy will function is through back testing. This is the method of testing your trading plan against a set of past trading data. In other words, this is a way of seeing how a system would have performed if it were used on past trades identified using your predetermined criteria.

You can manually back test your system. This however will most surely be a labor intensive task. Moreover, it might be a particularly difficult choice because you may not always have access to the necessary data for testing. An alternative to manual testing is to use a software tool. There are a couple of tools available online that you may want to try. Some of these offer their own sets of data. It is often better however to settle for programs that are compatible with third party data providers so you can choose those that provide the kind of data that are specifically important for you.

Going through the process of back testing is only one trading tip. Aside from this step, you also need to keep in mind that you go for a plan that is made just for you. You might be able to benefit from borrowing the principles, steps and tips contained in popular trading systems. In the end however, it is important that you make sure that whatever you choose to follow is in line with your goals, trading style and risk guidelines.

Some say they have the keys to the ultimate profitable trading systems. The truth though is that what is best for you is that which is made to match who you are as a trader perfectly.

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