Trading Systems
So, why would you want to adopt a trading system?
- It takes all emotion out of trading - Emotion is often cited as one of the biggest flaws of individual investors. Investors who are unable to cope with losses second guess their decisions and end up losing money. By strictly following a pre-developed system, system traders can forgo the need to make any decisions; once the system is developed and established, trading is not empirical because it is automated. By cutting down on human inefficiencies, system traders can increase profits.
- It can save a lot of time - Once an effective system is developed and optimized; little to no effort is required by the trader. Computers are often used to automate not only the signal generation, but also the actual trading, so the trader is freed from spending time on analysis and making trades.
Developing an effective trading system is by no means an easy task. It requires a solid understanding of the many parameters available, the ability to make realistic assumptions and the time and dedication to develop the system. However, if developed and deployed properly, a trading system can yield many advantages. It can increase efficiency, free up time and, most importantly, increase your profits.
The main markets for which trading systems are suitable are the Equity, Forex and Futures markets. Each of these markets has its advantages and disadvantages. The two main genres of trading systems are the trend-following and the countertrend systems. Despite their differences, both types of systems, in their developmental stages, require empirical decision making on the part of the developer. Also, these systems are subject to extreme volatility and this may demand some stamina - it is essential that the system trader stick with his or her system during these times.