What’s the difference between a Trading Strategy and a Trading System? 

In This Video:
00:48 What is a Trading Strategy?
01:34 The Benefits of a Trading Strategy
03:19 Where do you Get that Education?

What’s the difference between a trading strategy and a trading system?

Let’s find out that and lots more, right now!

Hi Forex Traders, it’s Andrew Mitchem here, the Forex Trading Coach, today coming from beautiful Queenstown in the south island of New Zealand and as you can see behind me, it’s just an absolute stunning day here, bit of snow on the hills, getting ready for ski season. If you’re listening on the podcast, sorry you missed outfor an absolute stunning view behind.

So, in today’s video and podcast, I want to talk about the difference between a trading strategy and a trading system.

I’ve had an email here from Nikolai and he said, “Andrew, Can you let me know why having a strategy, not a system, can be more beneficial to my trading success?”

So, let’s really just talk about the difference between the two.

What is a Trading Strategy?

I have what I call a trading strategy. I don’t have a system!

A system to me is something that’s quite mechanical let’s say that if this happens, then do that. And you generally find that a lot of systems are things that people have coded into robots, EAs, expert advisors; that type of thing. And they’re fine!If that works for you and if you’ve got something that’s quite rigid, quite mechanical that works for you – if this crosses over that, then do this; exit after so much time or so many pips – that’s fine! If that works for you, great, go for it!

But for me personally, I much prefer trading strategy because I’m a technical trader. I like to look at the market, like to analyse the market, look at price-action, candle patterns, etc. and that’s what a trading strategy actually allows me to do.

The Benefits of a Trading Strategy

It allows me to be a little bit more flexible. You know, I don’t always trade exactly the same setups.

If I see what looks like a really good setup, I might think – hey look, it looks good but I’m already in that pair with another time-frame chart; I may already be looking at that pair coming to some form of exhaustion or possible reversal, so therefore though the setup’s good, I can see a reason not to take it – you know in terms of you might be buying at a round number or a resistance level – whatever it might be, well there could be news coming up on that particular pair.

So, I like to have flexibility in terms of my strategy itself. I also like flexibility in terms of the money management. I am quite strict on money management – I like to always want to have no more than half of one percent of my account traded, any risk on any trade. If the trade goes wrong, I lose no more than half of one percent. However, I might change that – I might go down to quarter of one-percent if I’ve got multiple trades open or multiple trades open on the same pair.

I might have a trade open, let’s say, on the Euro/US Dollar (EUR/USD) on the daily chart and the weekly chart and now I’m seeing a good setup on the 4-hour chart – all in the same direction – but now I am quite exposed to buy trades on the Euro/US Dollar (EUR/USD).

If I see this 4-hour chart setup and it’s a really good one, then I just might reduce my risk down to, say, quarter of one percent. Again, it’s adding a little bit of common sense, a little bit of flexibility within the system and that’s really what I call a strategy.

If that was a trading system, you’d be very rigid and say, you know, every trade has to be the same and the setups there so I’m going to take it. I might look at closing a trade part early if I see a reason to do that and again, that’s the strategy.

Elaborating with Other Trading Facets

Look at indicators for example – Bollinger Bands!

If the price action is near the upper Bollinger Band, a lot of people look at that and think – well, that means it’s reached the resistance area therefore, the pair’s now likely to fall away, and reverse. I also can trade like that if I see a simple candle pattern. But if I see, let’s say, a bullish candle pattern, near the upper Bollinger Band, there’s no reason at all to think that the upper Bollinger Band is going to mean the instant reversal of that pair.

And so therefore, you look at your charts how often you see bullish patterns and the price just goes up and up and up. Same withstochastics, just because it’s over-bought doesn’t mean the price is going to drop. Just because it’s over-sold doesn’t mean to say the price is going to rise. And again, that becomes the difference with some human input and common sense and experience as opposed to a system which is quite rigid.

So, in my opinion, a strategy – a trading strategy – which is what I teach, what I trade myself, is a far better option for your longer term success than a system. So Nikolai, hope that answers that question for you and I hope that everybody else watching has benefited from that!

If you have any subjects that you’d like me to talk about – any trading topics, just send me an email: [email protected] and I’ll make future videos and podcasts answering your questions for you.

So that’s it for today – as you can see behind, like I mentioned absolutely cracker of a day here in Queenstown, beautiful blue skies, lots of snow starting to appear on the mountain ready for ski-season, it’s just about a few weeks away.

So that’s it for now. This is Andrew Mitchem, the owner of the Forex Trading Coach, talk to you soon.