The Essence and Construction of the Trading System

The trading system is essentially a complete set of operational rules, similar to the conditioned reflex mechanism in biology. It encompasses systematic rules regarding entry, exit, stop-loss, and take-profit.

Many people have misconceptions about trading systems. Some believe that simply having a trading system guarantees profits, while others think they need to find a better system to achieve excess returns. There are also those who believe that there is some sort of "magical" trading system that can ensure profits without losses.

In fact, there is no trading system in the world that can guarantee stable profits forever. Even with an excellent trading system, it does not mean that one can achieve stable profits. Users need to have strong execution ability and be able to strictly follow the system's instructions. At the same time, everyone needs to find a trading system that suits them.

The trading system is more like a military guiding ideology. While it cannot guarantee victory in every battle, it can avoid disastrous defeats and preserve future opportunities. The trading system belongs to the strategic level, while specific operational thinking and strategies belong to the campaign level, and actual trading actions are manifestations of the tactical level.

When evaluating a trading system, the most critical indicator is the "profit-loss ratio." The profit-loss ratio is the average profit amount divided by the average loss amount. An ideal profit-loss ratio should be no less than 2, a ratio of 3 is considered passing, 4 is good, 5 is excellent, and higher than 5 is deemed perfect.

When designing a trading system, it is necessary to first clarify investment objectives and risk tolerance. A complete trading system should include the following elements:

1. Cycle Judgment: Understand the Market Trend
2. Operational Thinking: Determine Basic Operational Concepts
3. Select Coin: Choose Potential Coins
4. Timing: Determine the best buying and selling opportunities.
5. Trading Rules: Establish clear entry and exit strategies
6. Fund Management: Reasonable allocation and use of funds
7. Risk Control: Develop Risk Management Strategies

In a bull market, selecting coins is particularly important. Frequent coin switching should be avoided, and focus should be on holding selected coins for the long term. For large funds, the importance of coin selection is even more prominent.

Timing and trading rules are key to controlling risk. Trading rules should maintain a certain level of flexibility and should not be completely rigid. Buying must be based on technical entry points, while selling requires a certain degree of foresight.

Fund management requires the establishment of strict disciplinary regulations. For the use of leverage, beginners should be cautious, as it amplifies the emotional impact brought by market fluctuations.

Risk control is a fundamental rule in trading systems that can prevent mistakes caused by greed or a sense of luck, while also helping to maintain a calm mindset.

The purpose of the trading system is to standardize trading behavior and avoid arbitrary operations. Even a simple system can provide certain normative guidance. For ordinary traders, the key is to find an efficient operating system, rather than pursuing a system that is overly simple or complex.

The Granville Eight Principles is a typical example of a simple trading system, based on moving averages to judge price trends. Although this method is quite general, it still requires specific adjustments in different markets.