There are multiple cogs to a trading system and no matter how big or small they are they all play a vital role in making the whole system function effectively. If one fails, the system breaks down.

Before we build a system and put those cogs together you need to understand clearly what you want and how you’re going to get there. This is the aim. I have talked about the process and the discipline required to put you in control of your trading destiny and this is common to all disciples of the trading journey.

Today I want to help you understand the importance of the actual trading system we use, what we are trying to do with it, and where it fits as an important cog in the process.

THE SYSTEM

As a price analyst assessing price behaviour, we need tools that helps us evaluate the price action to helps us determine our objective of identifying trends. Often price is not trending, and the price behaviour reflects uncertainty and is jumping from one direction to the other and in these instances, we leave well enough alone. However, when a trend develops, we need the right tools to identify them. As well as the most basic and important filter of the price action that moves in waves of higher highs and lows itself, we have other tools at our disposal that can add depth to this assessment and add additional confidence or in real terms improve the odds that the price is in fact entering a trending phase.

Briefly put we make this our objective because trends occur regularly, are easy to follow, and often exceed our expectations as far distance travelled. The current chart (30/6/26) of DBI is a great example of trend extension.

The additional tools (3) we use as well as the price itself help us measure the development of the trending attributes by offering different perspectives to assess this price behaviour. Volume adds a participation perspective, moving averages add an odds perspective and a momentum adds crowd behaviour component. Is the psychology of the herd behaviour occurring, an important aspect of behavioural analysis. We are all human and behave like humans and herd behaviour is one of the most irrational yet one of most compelling characteristics of a trend.

Trying to rationalize this becomes difficult and is often futile which is why we choose to follow rather than reason. The reality of how we reason and the reality of how markets work is often at odds making market behaviour appear to arrive at totally illogical outcomes. The price is always right, however, much to our dismay.

We see many examples trends in day to day behaviour with such things as trends in fashion a notable example. How often do you see three young kids walking down the street with the same outfits – a fashion trend and human herd behaviour. Fashionable restaurants attract queues and in the city these days gong cha tea and certain coffee, ice cream shops are often overwhelmed by demand. The herd is a powerful ruse.

So, this becomes the basis for activating our buy and selling actions with the charts of price behaviour offering specific triggers levels for us to more specifically base our trading decisions on. i.e knowing when and what to buy and sell.

WHAT ARE WE TRYING TO DO?

Make money and manage risk. An important aspect of selling is controlling risk, and this has little to do with being right or wrong or the actual price behaviour. It is a monetary control that ensures survival and assists in the probabilities of success. It is not just about limiting losses but also about managing profits in a disciplined way. So, as well as objectivizing trends we also must manage our balance of profits and losses otherwise we lose money – not the objective! Risk control aids in maximising profits and minimising losses so that our balanced approach drives positive outcomes.

WHERE DOES IT FIT?

The trade plan settings of managing sector limits, capital allocations, the data universe we source prospects from and the many other decision inputs we make are overriding and encompassing decisions that precede the buying and selling actions.  There is thus an accompanying governance of rules built around the trading process for it to function successfully and set us up with a strong odds biased structure. We are trying to take the subjective nature out of all the decisions we make be predetermining all decisions.

The importance of doing this especially in relation to our buying and selling is particularly important as they can potentially be highly charged emotional events unless they are properly controlled. If we remove that emotional taint and make these decisions in a more controlled environment, we are more likely to make the right decisions. So, the trading decisions became a part of the trade plan of rules and processes. The simplicity of the rules, 2 entry and 1 exit, make the trading decisions a relatively small part of the whole process where the predetermined aspect of many other conditions that go into building a working trading plan are also as vitally important.

We know a trading system of buying and selling is relatively easy to create. Important yes but the scale of its input into the whole system is relatively minor. Each cog must do its job yes, and work properly yes, but the whole process of rules and systems must work together to facilitate the desired outcome.

Writing them down is often seen as a good way to start to understand structure and habit and eventually it will all roll out naturally and easily – just like muscle memory. One step follows the next of the yes / no decision process that brings you to an educated and qualified trading decision.