Making a 2+2 trading system

[Ps3tn0NcYk]

[ QUOTE ]

I'm wondering why you think so. I believe money management is the most important part of a system as your edge is worthless if you bust out. Exits are also more important than entries as they define your initial risks and your profits.

It's evident from many threads on these boards that most people concentrate on entries. "When do I sell GOOG" suggests the investor bought without clearly defined exit criteria. He might have made a perfectly timed elegant entry, but appear not to have considered the exit. It's so easy to allow a winner to turn into a loser, or to prevent a small winner turning into a big winner without proper exits.


[/ QUOTE ]

In short term trading entries and exits points are all you have- so we are agreeing here. The points sit at the center of a trading system. Specific price zones will define the risk of a particular trade- which is equally important.

Probably most important is stress testing a system for situations that might lead to a total blow-up of the account capital. The equivalent of a "major leak" in poker.

I always ask "how much can I lose" or "where am I going to sell and take a loss" before assessing the potential for upside opportunity. A randomly picked backroll number -- ie "$5000" -- is not a target or a stop loss because it runs the risk of being determined by your personal financial situation rather than the specific influences impacting the direction of the trade. One ought to size positions in a fashion where bankroll never faces a crippling loss with one trade.

But risk management is irrelevant in the absence of the logic layer that determines when one enters and exits a trade.