The Edge & your trading system

1. Entry signal — measurable, repeatable condition
2. Stop loss — predefined max loss
3. Take profit — predefined exit target (or trailing logic)
4. Position sizing — fixed number of contracts or % of account

If you can't explain these 4 elements clearly to a friend, you don't yet have a system. You have an idea.

Backtest: simulate your system on historical data. Tells you if there's a statistical edge. Cheap, fast, but you can cheat yourself (lookahead bias, overfit).

Paper trading: execute your system in real time on a simulator. Tells you if YOU can follow the system without emotion. No money risked but the discipline is real.

Many trading approaches can produce an edge. This course doesn't tell you which one to pick — that's your job as a trader. What matters is:

• Choosing ONE approach you understand completely and can describe in concrete, measurable rules.
• Mastering it before adding others — a single well-validated approach beats three half-validated ones.
• Accepting that no approach is "best" — each works in specific market regimes and fails in others. Rigorous backtesting is how you find out which side you're on.

The honest question to ask yourself: does the approach I trade actually have an edge — or have I just been lucky on a favorable regime? That's what proper measurement answers.

Prop firms have strict drawdown rules. Without a system:

• You take random trades
• You hit drawdown after 5 bad days
• Account blown, fees lost, you start over

With a system, even if you lose, you lose controlled. You know your worst case. You can size accordingly.