I think the first steps to building such a system is to decide what type of trades the system will be taking. [Thinking]
E.g. Short term earnings play, swing/position momentum or value factor play, intraday scalps, etc.
What it helps with [Cool] :
Objectively identify strategies that worked and those that didn't.
Helps to streamline the decision making process, since you'll know what to look for in a potential trade. (E.g. Stock/Options Screening)
Capital allocation per trade (E.g. No more than 5% risk per position for short term trading, especially when trading options where margin is involved)
A simple discretionary trade system would probably have the following components:
1. When to start looking for trades (E.g. capital underutilized [Surprised] )
2. How to establish tradeable universe of stocks/options ( E.g. Filter Criterias, Screeners)
3. Entry trigger and filter (E.g. When to enter the trade)
4. Exit trigger (E.g. When to get out/take profit)
5. How to allocate capital (E.g. No more than 2% risk per trade)
My opinion is that #2 is more important than #3. Your stock/options pick will make or break a trade regardless of how good your entry was.
Recently, I've pivoted to a more automated strategy for my stock trades, where my capital is usually almost fully deployed, a more portfolio-oriented trading approach vs discretionary single stock picks.
Some differences:
2. Establish tradeable universe based on some criteria and rank the stocks based on those criteria.
3. Pick the top-N stocks based on the ranking and allocate capital accordingly (E.g. Can be equal-weighted or using risk-parity)
4. Decide a rebalancing period (E.g. Every end of quarter).
Once it's reached, repeat from step #2, here you either trim/add to existing positions or completely exit them if they no longer appear on your list of top-N stocks.
Ultimately, the system that works best for you will depend on your risk appetite and personality, as there's no one size fits all. [Smile]
I hope this helps in building your desired trading system. I'm constantly finding ways to improve my processes as well so if you have some good ideas, feel free to reach out [Miser] .
Let's all huat together! [Grin]
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