Begin with a trading system you trust. After sufficient testing, you can determine the risk control strategy necessary for that system. The risk control strategy specifies the number of contracts per signal and the initial dollar amount of the risk per contract. The risk control strategy may also specify how the initial stop changes after prices move favorably for many days.
The system must clarify portfolio issues such as the number and type of markets suitable for this account. The trading system must also specify when and how to put on initial positions in markets in which it has signaled a trade before commencement of trading for a particular account.
8 Developing and Implementing Trading Systems
A trade plan is at the heart of system implementation. The trade plan specifies entry, exit, and risk control rules along with the statistical edge. You should record a diary of your feelings and the quality of your implementation, plus any deviations from the plan and the reasons for those deviations. You should monitor position risk and the status of all exit rules.
Last, take the long view: Imagine you are going to implement 100 trades with this plan, not just one. Thus, you can ignore the performance of any one trade, whether profitable or not, and focus on executing the trade plan. These and other implementation issues are discussed in detail in chapter 9.