How do I Choose the Best Day Trading System?

The basic elements that go into choosing the best day trading system are the market or markets the trader wishes to trade, whether the trader prefers scalping or swing trading, the amount of trading capital the trader has available, and whether the trader prefers a computer traded system or one that relies on the trader’s judgment and chart reading skills. A trader is unlikely to find one day trading system that is best in every respect, so she may wish to create a scoring system. Any system should be paper-traded before risking cash on it, and many brokerages have on-line facilities for paper-trading. Real time trading often goes a little less well than paper-trading, and a day trading system that is borderline in paper-trading should not have real money bet on its success.

What market you trade in does have an impact on the day trading system chosen because not all markets are alike. For example, stocks trade differently than futures, and futures on bonds trade differently than futures on currency or futures on corn. A trader can evaluate each system on the particular market she wants to trade, letting the market choose the system. She can also evaluate a particular system on each market, allowing the system to choose the market. Either approach can be successful.

Whether the trader wishes to scalp or swing trade will dictate the choice of day trading system. Scalping systems, or systems that are focused on winning a few dollars frequently each day but risk several times the expected gain, often don’t work well as swing trading systems. Swing trading systems expect to trade once or twice a day at most, and some days they won’t trade at all. These day trading systems generally aim to win two or three times the amount risked, and they generally make poor scalping systems.

The amount of trading capital may determine the kind of day trading system a trader chooses. In general, systems in which computers do the trading or make all the trading decisions require more capital than trader directed systems. Computer systems have lots of work put into their development and discretionary systems, those requiring trader judgment, have lots of work put into training the trader. Computerized systems will have periods when they lose many more trades than they win, but are expected to have periods when profits more than make up for earlier losses. Discretionary systems are more adaptable to changing markets, but can be more stressful for the trader.