Let's start by talking about what a system is. Merriam-Collegiate Webster's Dictionary defines a system as "an organised or set procedure." So, a stock trading system can be defined as "a set way to trade stocks in a planned or organised way." There are two very important words in this definition. These words are set up and organised.
These words tell us that a system for trading stocks is in the works. Planned is a good word because it means that we know what to do when we use a stock trading system to trade. Every stock trader who makes money has a plan. You don't want to rush into a trade and then scramble to figure out what to do next.
Another thing we can say about stock trading systems is that they are made to help people make money when they trade stocks. That's the plan, but it doesn't mean that's what will happen. I don't think anyone would want to make a stock trading system that loses money. There are two main types of systems for trading stocks:
Fundamental
Technical
Fundamental analysis looks at economic data about supply and demand, while technical analysis looks at past data about prices, volumes, etc. Most of the time, when someone talks about a system for trading stocks, they mean a system that was made with technical analysis. Systems for trading stocks can be very easy or very hard to understand. This is a simple example of a system for trading stocks:
Every Monday, buy a stock when the market opens.
Every Friday at the end of the day, sell the stock.
I know this is a simple way to trade stocks, and you might be thinking, "That would never work." Maybe it would work, maybe it wouldn't. We'd only know for sure if we tried it.
Over the past few years, the number of people who use stock trading systems has grown. One reason why more and more people use stock trading systems to buy and sell stocks is that they want to have more control over risk. After stock prices dropped sharply in April 2000, we all started to realise that "buy and hold" might not be the only way to make money on the stock market.
