Anatomy of a Trading System

A collection of tools is not a . A trading system defines exactly what you do in every situation: finding stocks, entering trades, managing risk, taking profits. Zero ambiguity.

The Five Components

Remove any one of these, and you do not have a system. You have a guess.

The Management Gap

Most beginners focus on entries. Experienced traders focus on management. Two traders entering the same stock at the same price can have opposite outcomes based on their management rules.

Rules-Based vs Discretionary

Most successful swing traders blend both: a rules-based core for risk management with discretionary elements in stock selection and entry timing.

What Must Be Rules vs What Can Be Discretionary

Anything related to risk stays rules-based without exception. Discretion is limited to opportunity identification.

Document Your System

Use the strategy builder to draft your system. Each section maps to the five components above. You will fill them in as you progress through this level.

One System or Several?

Key Takeaways

A trading system has 5 components: market selection, entry, exit, position sizing, and trade management
All risk-related components must be rules-based without exception
Exit strategy matters more than entry strategy for profitability
Start with one complete system before adding complexity
Undocumented rules are not real rules

Try This

20 XP

Using the strategy builder above, fill in the sections you already know: position sizing rules (from Level 4), stop-loss method, and risk parameters. You will complete the entry and exit sections in upcoming lessons.

Disclaimer

This educational content is for informational purposes only and does not constitute financial advice. Past performance is not indicative of future results. Trading involves risk of loss. You should consult a qualified financial advisor before making investment decisions. Swingfolio is a trade journaling tool, not a financial advisory service.