Basics of trading system

• 1. What Is A Trading System BY: JUSTIN KUEPPER
• 2. A trading system is a group of specific parameters that combine to create buy and sell signals for a given security
• 3. Trading systems can be developed using many different technologies, including Microsoft Excel, MATLAB®, Trade Station, R, Python, and other platforms and languages
• 4. The buy and sell signals from these platforms may appear in a file for you to execute or be programmatically executed using a brokerage that supports automated trading
• 5. In basic trading systems, two or more technical indicators are combined to create buy and sell trading signal
• 6. For example :
• 7. a moving average crossover trading system uses two moving averages as parameters: the long-term and the short-term, to create trading signals
• 8. Advantages of Trading Systems:
• 9. Removes cognitive biases Cognitive biases take a large toll on trading income and trading systems remove most of them from the equation. Traders who are unable to cope with losses second-guess their decisions, while those that recently lost money may miss out on new opportunities. Trading systems remove traders from actual buy and sell decision-making and create more predictable results
• 10. Saves time Trading systems that are developed and optimized may require less effort to maintain than sitting by a screen all day finding opportunities and placing trades. Traders can also develop trading systems any time of the day, which means that they can spend market hours away from the screen
• 11. You can outsource some of the work Many software developers specialize in developing trading systems. If you come up with the rules, they can implement and back test the trading systems to see how they perform. Some companies also sell off-the-shelf trading systems, but it's generally a good idea to exercise caution when considering them
• 12. disadvantages of Trading Systems
• 13. Requires unique skillsets Developing trading systems on your own requires a solid understanding of both technical analysis and software development. While you can outsource software development, you will still need the ability to effectively translate your innate knowledge of technical analysis into specific rules that can be implemented by a computer algorithm rather than relying on intuition
• 14. Can be difficult to optimize Trading systems must include many different assumptions, such as slippage, transaction costs, and changing market dynamics. Even when accounting for these factors, it's impossible to test trading systems before pushing them live, which means that there's a degree of uncertainty involved. Problems may arise in live trading that can be costly and difficult to fix
• 15. Requires a large initial investment Trading systems take a lot of time to initially develop and test before pushing them live. During this time, you will not be generating any trading revenue, which could be costly for some traders. Trading systems also require ongoing maintenance to fine-tune parameters and address any changes in the market