Trading System [Risk, Transaction Cost, Execution]

A framework built around a trading strategy that defines constraints, measures risks, and supports organizational goals through planning, testing, measuring, and making necessary adjustments.

Trading Strategy [Alpha Model]

A fixed, systematic process you use for finding, executing, maintaining, and concluding a single trading opportunity and/or portfolio construction.

Playbook

The collection of trading strategies that are designed individually for unique market conditions

Definition of Trading System from “Inside the Black Box” - Rishi K. Narang

1. Alpha Model
2. Risk Model
3. Transaction Cost Model
4. Portfolio Construction Model
5. Execution Model

Credit: Inside the Black Box

Trading System Template

1. Methodology
   1. Instruments
   2. Time Frame
   3. General strategies
   4. Playbook - Edge
      1. Setups
      2. Triggers for entry
      3. Target Methodology
      4. Stop Placement
      5. Risk Assumption
2. Money Management
   1. Drawdown Controls
   2. Sizing
   3. Scaling
   4. Transaction Cost Management
   5. Portfolio Management
3. Mindset and Record Keeping
   1. Journaling -After Every trade
      1. Strengths/Weaknesses
      2. Feelings/Frame of mind
   2. Documentation
      1. Wins and Losses
      2. Long Term Profitability Ratio
      3. P/L
      4. Goal Setting and Tracking

Solid Rule of Thumb: If you can’t write it on the back of an envelope, it’s too complicated