I've written numerous articles on building trading systems before, but I haven't discussed how to optimize the details within a trading system yet.

Questions like, what is the optimal trading frequency? What's an appropriate success rate? How to choose the best time frame? How to refine one's own capital management rules? These are all very practical issues.

Many people have been unable to make profits because they haven't considered many details of their trading strategies.

So today, in this article, I'll talk about the 6 points we need to optimize the most based on existing trading strategies.

The content is very solid, and looking back, I really regret not doing these things earlier. So I suggest everyone absorbs this information seriously. If you find it helpful, you can give me a like at the bottom of the article. Thank you.

1. Optimize Trading Frequency

Trading too frequently or too infrequently can affect the execution and profitability of trades.

For most traders, the issue lies in trading too frequently. Many people want to make money quickly, so when setting up their trading systems, they hope for a higher trading frequency, so they can make more money.

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Just like when I first started trading, I wished I could be in front of the computer all day, staring at the flickering candlestick charts, wishing I could trade every second because it was just too thrilling and joyful.

However, trading too frequently brings two very obvious problems:(1) Excessive trading operations can lead to chaos in the midst of busyness, such as opening the wrong type of product, the wrong position, misjudging the pattern, or even missing trading opportunities due to the chaos, greatly increasing the probability of making mistakes and missing out.

(2) In frequent trading, you will always be in a relatively excited state, which is impulsive and not calm. It is easy to get carried away in trading. There may be operations of betting on the market with heavy positions, and it may get worse each time, leading to serious losses.

At this point, some people might say, "What if I reduce the trading frequency and take a long position?"

In theory, of course, it's OK, but in practice? If the trading frequency is too low, the trading system will not generate any signals to open a position, and you may lose patience while waiting; or if the holding time is too long, you will also lose patience.

This operation is extremely counterintuitive, so we need to optimize the trading frequency to a relatively balanced value, making our trading "relatively comfortable," in order to increase the possibility of profit.

Let's discuss the methods of optimizing trading frequency:

(1) Use technical indicators or time cycles to filter trading frequency.

In the trading system, by adding or reducing technical indicators and filtering time cycles, you can adjust the trading frequency. See the schematic diagram below.

The diagram shows an intraday trading schematic of the British pound against the US dollar, with the left side at a 5-minute level and the right side at a 1-hour level.

In the left chart, trading is conducted based on the 5-minute moving average crossover, and by referring only to the 5-minute moving average, there are 5 trading opportunities, 3 for going long and 2 for going short.When incorporating a filter based on the 1-hour moving average on the right side, only taking long positions above the moving average and not taking short positions, the two short opportunities will be automatically filtered out, reducing the trading frequency from 5 times to 3 times.

(2) Increase or decrease the number of traded instruments to optimize trading frequency.

This is the most straightforward method. For example, in the image above, one currency pair, the British Pound to US Dollar, trades three times a day. If you increase it to two currency pairs, the trading frequency will double.

Everyone can adjust the trading frequency up or down based on the specific circumstances of their trading system through the above two methods for optimization.

I will provide a set of reference values directly:

For intraday trading, it is appropriate to control the trading frequency to 3 to 5 times, which will not be too intense. For medium-term swing trading, controlling it to around 5 times a week is also appropriate.

These are my personal experiences, and you can also make fine-tunings based on your own personality.

2. Optimize the success rate and consecutive loss rate

Let's all consider a question first: a trading system with a 20% success rate and a reward-to-risk ratio of 5:1, versus a trading system with a 40% success rate and a reward-to-risk ratio of 2:1, both resulting in a 20% profit. Which one should you choose?

The answer is: choose the one with a 40% success rate. Why?

The reason is that a higher success rate generally indicates a more reliable trading system. While the reward-to-risk ratio is also important, a higher success rate can lead to more consistent profits and a better overall trading experience, as it reduces the number of losing trades and the associated心理压力. Additionally, a higher success rate can also mean that the system is better at identifying profitable opportunities, which can be crucial for long-term profitability.The first type has a 20% success rate, with an 80% error rate. Out of 100 trades, 80 are wrong, and the distribution of right and wrong is not uniform. There may be a series of consecutive stop losses in the trading results, sometimes more than ten times, or even 20 times+, and the duration could last for several days or even dozens of days, which is unbearable for anyone.

As for the second type, with a 40% success rate, the distribution of right and wrong will be more even, the frequency of consecutive stop losses will be reduced, and the period of losses will also be correspondingly shortened, making it more sustainable and increasing the likelihood of executing the trading system.

It's like having a 20-pound stone pressed on your chest; you might think you can hold your breath for a while without any problem. But if you have an 80-pound stone pressed on your chest, you might feel fine before the stone is pressed, but once it's on you, it's too late to catch your breath.

Therefore, when optimizing the trading system, one cannot only consider whether it can make money or make a lot of money, but also consider whether the money can be actually earned, which is the issue of execution.

So, how do we optimize the success rate and the rate of consecutive errors?

Adjust the risk-reward ratio. In practice, by reducing the risk-reward ratio, the success rate of trading can be increased. See the illustration for reference.

The illustration shows a 5-minute chart of the British Pound to US Dollar, for intraday trading.

There are three trading opportunities. The first trade has a risk-reward ratio of 1:1, less than 2:1. The second trade has a risk-reward ratio of 2:1, less than 3:1. And the third trade has a risk-reward ratio of more than 3:1.

If we set our exit at a 1:1 take profit, then all three trades would be correct.

If we set it at a 2:1 take profit, then two of the trades would be correct.If we set a profit-taking ratio of 3:1, only one trade would be correct.

The impact of the risk-reward ratio on the success rate is the most direct, and as long as the success rate of the trading system increases, the consecutive error rate of the trading system will automatically decrease; the two are interlinked.

Here is a reference value for the success rate:

On the basis of being profitable, a trading system with a success rate of 30%-50% is the most executable.

The trading system I am currently using has a success rate of around 40%, with a risk-reward ratio set at 2:1. This is a parameter setting that I have tested and practiced for many years and is the most suitable for me. I have also shared some trading systems on my public account (Eight-Digit Garden) before, which you can refer to together.

3. Difficulty in execution optimization

The difficulty in execution mainly focuses on two aspects:

(1) The trading system is too complex, using many indicators.

Some netizens sent me screenshots of their trading software, with up to dozens of indicators. When executing trades, you have to consider many factors, and when the market changes quickly, you simply cannot react in time. By the time you understand and figure it out, the market may have already passed, and the probability of missing and making mistakes is very high.

(2) There are too many subjective judgment factors in the trading system, and the detailed standards are not clear.Let me provide an example. A netizen left a message for me saying: His entry criterion is to enter after a strong platform break following a large candlestick.

At this point, I raised a question: What is the standard for a large candlestick? How much space does it have to cover to be considered a large one? Is it only the body that is considered or also the wicks?

He was confused by my questions. The issue here is that the details are not clear enough; there are only vague concepts, which is very detrimental to execution.

If the criteria are not clear, when you are executing in a real battle, you will feel very anxious. Should you enter or not? Should you exit here? Is this pattern correct or not?

Moreover, the current emotions will also affect your judgment. For example, when you are afraid, you will tend not to enter in front of a vague pattern; when you are excited after making a profit, you will directly enter in front of a vague pattern.

The result will be that you don't enter when you should, and you enter when you shouldn't. The standards are vague, the consistency of trading is lost, and ultimately, losses are incurred.

Methods to optimize the difficulty of execution:

(1) Reduce the number of technical indicators.

A trading system has four most basic elements: determining direction, entry method, stop loss and take profit, and capital management. Using 3-5 technical indicators is enough. More indicators will only increase the difficulty of trading execution and will not improve the level of profit.

(2) Improve and clarify the standards of the trading system, and quantify the details that require subjective judgment with technical indicators.For instance, instead of saying "enter the market when the large k-line breaks through a strong platform," it would be clearer to say "enter the market when the k-line closes above or below the 60-day moving average." This kind of standard is clear and explicit, so even if someone else comes to execute it, they can make exactly the same trade.

Under such standards, you won't have doubts during the execution of the trade, which could lead to unfavorable trading outcomes.

4. Optimize Time Periods

Many traders focus only on the use of technical indicators and the refinement of methods, but they overlook the choice of time periods.

There are usually three issues with time period selection:

(1) The chosen period is not suitable for oneself.

For example, a part-time trader who already has a demanding job and limited energy, and yet chooses an intraday trading period, may find that the time for their main job conflicts with the time needed to monitor the market, which can easily lead to missing trading opportunities and an inability to execute the trading system.

(2) The time period is not fixed.

In trading, the choice of time period is very arbitrary, switching periods on the chart at will to look for opportunities to trade. However, orders in different time periods have varying holding times, different sizes of stop-loss spaces, different standards for position management, and different levels of order risk. Not having a fixed trading time period can lead to trading chaos.

(3) There is a lack of coordination between large and small periods.

This refers to the situation where the trading strategies and time frames are not aligned between different scales of analysis, which can cause confusion and inconsistency in trading decisions.Many traders employ a trading logic that combines different time frames, but they often make two common mistakes.

The first mistake: Inconsistency in the coordination of large and small time frames. For instance, within a trend on the hourly chart, sometimes they enter on a 5-minute chart, sometimes on a 1-minute chart, and sometimes on a 15-minute chart. Such trading lacks uniformity, and the trading results have no statistical significance.

The second mistake: Mismatch between the large and small time frame levels. For example, when the trend is on the daily chart, entering on a 5-minute pattern can lead to many false breakouts. A simple correction on the daily chart can trigger a stop loss on the 5-minute pattern, while the daily trend remains intact, resulting in a high rate of trading errors and making it difficult to execute.

Another example is a trend on the hourly chart, entered on a 30-minute chart. The patterns of the two are very similar, and the effect of coordinating the large and small time frames cannot be achieved.

Methods to optimize time frames:

(1) Based on one's own schedule, determine a suitable time frame for trading. For example, part-time traders should aim for time frames above the hourly level, while full-time intraday traders should choose time frames above the 5-minute level.

(2) Select a fixed time frame as the main trend for trading. For instance, in my trading system, the hourly level is used as the main trend for trading. I only confirm the direction of the trade on the hourly level and consistently enter on the 5-minute level.

(3) A reference standard for the time span between large and small time frames: The daily level can enter on the 1-hour or 30-minute chart, the 4-hour level on the 15-minute chart, and the hourly level on the 5-minute chart.

5. Optimize money management

Money management is one of the most important components of a trading system.A good trading system can lead to losses due to improper capital management. An ordinary trading system can achieve profits with reasonable capital management. When trading skills reach a certain level, a bottleneck will inevitably be encountered, and traders need to optimize capital management to improve the level of profitability.

There are mainly two problems encountered in practical capital management:

(1) Lack of rules for capital management, and the use of positions is arbitrary.

This situation is more common among novice traders and is also a major cause of trading losses. Many people have their own understanding of the market, and they increase their positions when they think the market is good, and reduce their positions when they think it is not. If they are in a good mood today, they increase their positions, and if they are in a bad mood tomorrow, they reduce their positions. If they get carried away one day, they go all-in with a heavy position.

These are all major taboos in trading.

When all your trading positions are based on your own subjective judgment, the results of the trade will definitely be uncontrollable, often resulting in small profits and large losses, or even a blown account.

(2) Preference for heavy position trading.

Some people's position ratios do not match the decline range of the trading system. Suppose the trading system uses a 1% position standard with a maximum drawdown of 30%; if a 4% position standard is used, the account will blow up during the drawdown process.

Some people's position ratios do not match their own tolerance. Suppose you can only psychologically tolerate a 30% capital drawdown, but the heavy position account you are using has reached a 50% drawdown. Although the account will not blow up, your mentality is very likely to collapse, and the subsequent trades cannot be executed at all, so your trading strategy becomes ineffective.Methods for Optimizing Fund Management:

General Principle: It is better to trade with a lighter position and earn less than to trade with a heavier position and suffer significant losses.

(1) Formulate rules for fund management by combining data from the trading system's results. The trading system's consecutive error rate, overall drawdown, and the time period of decline are all factors that need to be considered. It is essential to ensure that the account is far from the risk of blowing up.

(2) Consider your own tolerance when setting fund management rules. Traders often overestimate their ability to withstand losses in trading. Based on past experience, 30% of a trader's self-perceived tolerance is the psychological limit they can handle.

For example, if you believe that you can maintain a good trading mentality and execution ability when your account loses 60%, in reality, the actual drawdown value you can withstand may only be 18%.

My own numerous experiences of failure have taught me that in the face of human nature, we are all vulnerable; do not overestimate yourself.

Here is a reference value for you:

For a fund management plan using a fixed amount of stop loss per trade, do not exceed 2% per trade. If using a fixed lot size for fund management, for a $10,000 USD account in forex trading, do not exceed 0.5 lots for forex pairs, and do not exceed 0.3 lots for gold and crude oil.

6. Optimize Trading Instruments

There are many tradable instruments in the financial market, but it is impossible for us to trade all of them. The selection of trading instruments is a very important and necessary project that must be optimized well.The issues with selecting trading instruments mainly involve three aspects:

1. Trading too many instruments.

The belief among many novice traders is that more instruments represent more trading opportunities, and more opportunities lead to greater profits. However, a trader's capacity for attention is limited. If one monitors too many instruments, it becomes difficult to pay close attention to each, leading to missed opportunities and errors in execution.

Additionally, your capital is finite. If you trade too many instruments and at a high frequency, you can only reduce the amount of capital invested in each instrument per trade. Although the variety and frequency of trades increase, and you become busier, the utilization rate of your capital decreases. Ultimately, you may find yourself exhausted with little change in profits.

2. Randomly selecting instruments for trading.

This mistake is more common in practice. Traders tend to follow the market trends, buying high and selling low. For instance, if gold has been performing well recently, they might add it to their trading list. Then, if crude oil starts to show promise, they add that as well.

In reality, the market fluctuations of different instruments follow cycles. Traders often add instruments to their trading list with a lag, chasing the market trends. By the time they enter a trade, the trend may be over, leading to exhaustion without any significant profit.

3. Trading unsuitable instruments.

Each instrument has its own pattern of volatility. Some are fast-moving with large price swings, while others experience frequent oscillations with smaller price ranges. For example, the EUR/USD pair might fluctuate by about 100 pips in a day, whereas crude oil can fluctuate by 100 pips within an hour.

Every instrument has its own characteristics, and it is important to choose instruments that align with your trading temperament. This alignment can make it easier to achieve profitability.Methods for Optimizing Trading Instruments:

(1) Fully understand the attributes of different instruments. Foreign exchange trading includes direct crosses, cross crosses, gold and crude oil, and stock index futures. Before selecting an instrument, it is essential to thoroughly understand their characteristics, which can be achieved through backtesting or simulated trading.

I have also written articles distinguishing between different instruments in the past; you can look for them in the article compilation.

(2) Choose a fixed instrument that suits oneself. Aggressive traders may opt for gold, crude oil, and stock index futures; conservative traders may choose direct and cross currency pairs. Once an instrument is selected for trading, it should be adhered to without adding or reducing instruments arbitrarily.

Here is a reference value for you: Full-time traders can do intraday trading and select 2-3 instruments; part-time traders can do hourly chart level trading and select 3-5 instruments.

7. Precautions for Optimization

(1) Balance, stability, and strong feasibility are the core.

The above mentioned six key points for optimizing a trading system. Optimization is to make the trading system more conducive to execution and to achieve more stable returns. It reduces the psychological pressure on traders during the execution process, lowers the difficulty of execution, and controls the risks associated with trading.

The purpose of optimization is to make money steadily, not to make more money. We can even actively give up some profits for better execution and simplify the trading system.

Because no matter how much money you have, if you can't get it, it's not your money. No matter how little money you have, if you can earn it, it's your own money.(2) Optimize through review and testing.

The optimization methods mentioned above all require review and testing. Whether it is the frequency of trading, the success rate, the profit-loss ratio, the choice of indicators, or the selection of cycles, after optimization, it is necessary to confirm the results of the optimization through review and testing before entering actual combat.

Finally, let me share my understanding of the trading system: Understand the trading system as our own partner. We need to trade continuously and accompany her for a long time. Only when we are comfortable, harmonious, and simple in execution with her, and when the psychological pressure is low, can we live well and go far.