The Truth of the Trading System: The Path to Profit is Not Achieved Overnight

The trading system is essentially a set of operational specifications, which can be likened to the human-computer interaction systems in computing or the conditioned reflex mechanisms in biology. It is a complete set of signal rules for entry, exit, stop-loss, and take-profit.

However, there are many misunderstandings about trading systems. Some believe that simply having a trading system guarantees profits, or that finding a better system will result in excess returns. There are even those who believe in a magical trading system that ensures profits without any losses.

In fact, there is no trading system in the world that can guarantee stable profits forever. Even with an excellent system, it does not mean that one can achieve consistent gains. Users need to have strong execution capabilities and be able to strictly follow the system's instructions. Moreover, a good trading system is not suitable for everyone; each person needs to find a system that works for them.

It is crucial to correctly understand the role of the trading system. It is similar to military guiding principles; while it cannot guarantee victory in every battle, it can help avoid disastrous defeats and preserve subsequent opportunities. The trading system operates at a strategic level, while specific operations belong to the tactical level.

The core metric for evaluating a trading system is the "profit-loss ratio", which is the average profit amount divided by the average loss amount. An ideal profit-loss ratio should not be less than 2; a ratio above 3 is considered acceptable, and above 5 is excellent. It is recommended that investors calculate the profit-loss ratio of their long-term trading system to assess its effectiveness.

Before designing an operating system, it is necessary to clarify the investment objectives, expected return rates, and risk tolerance. A well-developed operating system should include seven elements: cycle judgment, operational thinking, coin selection, timing, buying and selling rules, capital management, and risk control.

Cycle judgment helps to follow the trend and provides important references for subsequent operations. The operational mindset determines the strategy under different market conditions. Selecting coins is particularly important in a bull market, requiring consideration of factors such as circulating supply, themes, and on-chain data. Timing and trading rules are key to controlling risks and should be flexibly adjusted under different market conditions. Capital management includes regulations such as profit protection and leverage usage. Risk control consists of certain inviolable iron rules that help to avoid mistakes due to greed or a sense of luck.

The complexity of a trading system does not determine its quality; the key lies in efficiency. For ordinary investors, it is advisable to start with simple systems, such as Granville's Eight Methods and other moving average strategies, and make adjustments and improvements based on the actual situation.

In summary, establishing and using a trading system is a continuous process of learning and optimization. It can help investors standardize operations and control risks, but it cannot guarantee a profit without loss. Investors need to continuously adjust and improve their trading systems according to their own situations to adapt to the ever-changing market environment.