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Trading & Risk

Building a Simple System

Pomegra Learn

Building a Simple System

Most traders operate without a system. They see an interesting setup, feel confident, and enter a trade. They exit when it "feels right" or when they have made a quick profit. This approach is not trading—it is gambling dressed in technical language. A trading system is different. It is a set of rules, defined before you see the trade, that specify exactly when and how you will enter, where you will place your stop, how much you will risk, and when and how you will exit.

This chapter guides you through building a simple, mechanical system based on technical analysis. You will define an edge—a specific, repeatable market condition that gives you a statistical advantage. You will write clear entry and exit rules that leave no room for emotion or judgment. You will learn position sizing: how to scale your trade to your account and risk tolerance. You will discover how to backtest properly (after learning the pitfalls from the previous chapter), journal your trades, and measure performance. By the end, you will have a documented system you can execute with confidence.

Why this matters​

A system brings discipline. It removes the emotion that destroys most traders—the fear, greed, and rationalization that cause people to hold losers too long or exit winners too early. A written system also forces clarity. When you write "I enter when price closes above the 20-day moving average," you are forced to decide: Is it the 20-day simple moving average or exponential? Do I need the close to be above the entire moving average line, or just the most recent value? These seem like small details, but they are the difference between a system you can execute and a system you cannot.

A system is also falsifiable. You can backtest it. You can measure its performance. You can ask: Does this actually work? Most trader intuitions fail this test. But some setups, when tested rigorously, do show statistical edge. Those are the ones worth trading.

What you will learn​

Across the articles in this chapter, you will discover:

  • What a trading system is and how it differs from discretionary trading.
  • How to define an edge: what repeatable market condition gives you a statistical advantage?
  • Writing entry rules that are mechanical, clear, and testable.
  • Writing exit rules: when to take profits, when to cut losses, and how to scale out of winning positions.
  • Position sizing: how much capital to risk per trade, and how to scale your position based on volatility and account size.
  • The trading plan: documenting your system so you can execute it under stress and review it afterward.
  • How to backtest properly: avoiding the pitfalls from the previous chapter and interpreting the results correctly.
  • Journaling: the discipline that separates successful traders from the rest.

How to read this chapter​

Read these articles in the order presented. They build from the conceptual (what an edge is, what a system looks like) to the practical (how to write rules, size positions, and backtest). We assume familiarity with the technical analysis tools covered in earlier chapters and the backtesting pitfalls from the previous chapter. This chapter is hands-on; have a spreadsheet or trading software open as you read, and draft your own system as you go.

By the final articles, you will have a written, backtested trading system and a journaling discipline to support it.

Articles in this chapter​