Trading System vs Trading Model: Which One Are You Actually Using?

So, everyone’s arguing about terminology, a trading system is a trading model, “I use this, I don’t use that.”

And you might think, “Who cares? Let people get on with it, I just want to trade”
I agree… better ways to allocate mental bandwidth than argue over terminology.

But the definition matters for you and me… because we want to define exactly how we’re trading and understand the pros and cons of each.

So, let’s quickly run through the definitions, and then you can work out which you are…

#1 A trading system is a set of rules. If this, then that. 

Enter here, stop here, target here.

No thinking required in the heat of the moment, you just follow the rules…

And some setups work well with that approach.

The opening range breakout is a good example.

The first 15 minutes set your range, price breaks, and you’re in. Stop goes the other side, target a multiple of risk…

Totally mechanical and rule-based. Could even be automated.

#2 What about a trading model?

So Linda Raschke is brilliant on this. You know her, Market Wizard, forty-odd years in, and even though she’s a discretionary trader, she builds everything off the back of a model.

Now, a trading model isn’t a standalone set of rules. It’s more of a tendency, a theme.

A bit of edge the market shows again and again… but one that doesn’t tell you exactly when to pull the trigger, how to enter, or where to come out.

Think things like

“The market often reverses on a Tuesday”
“The first pullback after a strong move tends to get bought.”
“The Santa rally”
“The market likes to retest extremes the day after a trend day”

These things guide direction and rough timing, but not necessarily buy here, stop here, exit here.

You have to add that layer of discretion and judgement.

Now, if you’re struggling with discipline, you should really consider a system. A mechanical approach, see this, do that. As it builds that discipline muscle…

But that approach does have limitations; you can’t adapt to context, you can’t make small adjustments, or even decide not to trade.

And many studies have shown the best returns come from discretionary traders, not fixed systems.

So perhaps models are the way to go…

Think in themes, ideas, and tendencies. Then layer in your execution on top of that.