Mechanical Trading Like Richard Dennis: A Step-by-Step Guide

Step 1: Define Your Rules

The first step is to define a clear and unambiguous set of rules for your trading system. This includes entry signals, exit signals, position sizing, and risk management. For example, you might decide to enter a trade when a stock's price crosses above its 100-day moving average and exit when it crosses below.

Step 2: Backtest Your System

Once you have defined your rules, you need to backtest your system on historical data. This will give you an idea of how your system would have performed in the past and help you identify any potential flaws. There are many software platforms available that can help you with backtesting.

Step 3: Paper Trade

Before risking real money, it is wise to paper trade your system for a period of time. This will allow you to get a feel for how the system operates in a live market environment without any financial risk.

Step 4: Execute with Discipline

Once you are confident in your system, you can begin to execute it with real money. The key to success is to follow your rules with unwavering discipline. Do not let fear or greed influence your decisions.