What Criteria Will You Use to Enter a Trade 

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What Criteria Will You Use to Enter a Trade

A systematic trader may look for some type of moving average cross-over. A subjective trader might look for a market that is starting to trend, and an astrologer may short the S&P 500 when Jupiter aligns with Mars. The possibilities are limitless. The key here is to devise some method of trade entry that has some realistic probability of generating profits. One advantage the systematic trader has is that he can formalize his trading rules, run them through the computer, and see if his method actually generated some profits in the past. This can lead to a whole other set of problems if the system developer "over optimizes" the results. With enough indicators it is possible to devise a system that fits the past almost perfectly. The bad news is that such systems almost never perform well in the future when real money is on the line. Still it is generally preferable to have some idea of what you can expect from your trading approach than to say, "well, I think my theory is really going to hold up," and to then start risking real money to prove your theory - which is essentially what a subjective trader does.

The point here is that if you develop some set criteria for entering trades, and if you have some realistic reason to expect this criteria to generate good signals and you follow each signal as generated, you give yourself the best chance for success.

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