Expect both wins and losses. If you are looking for a system that has no losers, forget trading and go onto another hobby. Systems are best judged by the risk/reward ratio, not the number of wins to losses. You can make money on a system that is only right 40% of the time so long as you have big wins and small losses. The gross number of wins is meaningless without looking at an entire system.

The psychology of trading may be the most important element, since trading exposes one to all the emotions, from joy to fear, from exhilaration to grief, and the trader must be prepared for all this and be able to deal with it appropriately.

There are three keys to success for any trader, regardless of methodology,

1. Have a trading plan.
2. Have the discipline to follow that plan.
3. Use good money management to help survive the inevitable losing periods.

Do your statistical studies. Look at the past performance. Calculate things like the average monthly profit, average daily profit, average profit and loss and worst-case expected drawdown (a rule of thumb says this is the yearly standard deviation). Then you know what to realistically expect when trading.

The biggest error traders make is the inability to stick with a trading system through the drawdowns. This can be due to a variety of considerations, ranging from under capitalization to just plain fear. I find this strange, because the major reason for trading systematically is to have the confidence that the system will perform in the future much like it has traded in the past. It is not difficult to scan past performance for the maximum drawdown, so the required capitalization can be estimated. It is a virtual guarantee that this maximum drawdown will be experienced again, and a trader should be prepared to withstand it.

Once you have researched and chosen a system to follow, trade that system's rules precisely, and give it time to work. Know the system and believe in it. Make sure that you understand how the developer intended the system to be traded and try to do exactly that. If you can't execute trades the way the system requires, don't expect to duplicate the system's performance.

Once you're following a system, give the trades some time to work. A system with a long-term track record with good results may still have periods of months with no profits. You have to be ready to accept that and stick with the system long enough to see it work.

The decision to trade systematically is an excellent step in the right direction, but the job cannot be completed if you are still looking for ways to beat the markets at the rhythm of 200% a year. Try adequate capitalization and unwavering discipline. They make wonders EVEN with defective trading systems.

There are several key issues you need to know when system trading. First, know your system. Know its weak points and strengths. Learn its negative risk characteristics and positive reward characteristics. Understand that the drawdown and maximum consecutive losing trades numbers are your numbers. You designed, bought or leased these numbers. Understand that these are your numbers and they may sooner or later be reflected in your account. If your account is under capitalized relative to these numbers and you stop trading at the bottom of a drawdown you are selling, if you will, at the exact low of the market. Likewise, if you start trading at the top of an equity swing high, just prior to a drawdown, you may be buying the top of the market, just prior to a swing down in equity. Unfortunately, watching from the sidelines how much money a system made recently entices you to jump in, possibly at the exact intermediate term top in the equity curve. Similarly, learning that your favorite system you follow is in the midst of a large drawdown is not very appealing to jump in. By trading a system you are in effect going long the system with a buy and hold mentality.

Most system traders I have spoken to know that jumping in and out of the system is counterproductive, yet many still try to second-guess the system with the result of over trading the system equity curve. If you believe your system is really robust and has a good chance of being successful in the future, plan on adequate capital to trade the system and plan for the inevitable drawdown that will surely come. Know your numbers. Secondly, your trading infrastructure must be perfect. When the system equity curve was created, it was done so without missing a trade, going on vacation, getting sick, having data feed problems, having computer problems, getting missed or bad fills, etc. The equity curve was created with perfect execution. Likewise your execution needs to be perfect. You can’t second-guess the system. You can’t throw emotional overtones into the execution of the signals. System trading was not meant to be emotionally pleasing. If anything it turns out to be emotionally difficult, but this difficulty can be ameliorated with adequate capital knowing that the potential drawdown is well planned for and that human intervention will be needed only if a predetermined level of drawdown(risk) is exceeded.

Anyone who is contemplating trading a mechanical system owes it to himself and the developer to become intimately familiar with the system before trading it. It is easy to look at a drawdown figure and say, "that's no problem" -- but when the drawdowns hit, and they will, it's quite another thing to be able to deal with the losses. It's human nature to dwell on the profit possibilities of a system and downplay the potential for loss. Also, those who are unsuccessful with a system are usually those who think they can beat the system by altering its rules or parameters or selectively deciding which trades to take and which not to take when they are generated by the system:

The miniDAYTRADER system is a 100% rule based systematic trading system with proprietary indicators with approximately 8-15 trades a month. Trades are triggered only when the system's parameters are met.