What Is A 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