Trading Systems

A trade can be classified to four steps below

  • Plan a trade
  • Entry - Opening position
  •  Maintain - Includes risk management and stop loss adjustments based on underlying
  • Exit the trade  - Either Profit  taking or stop loss.

Trading System can be defined as a rule-based system acts on different set of rules for each of the above steps.

Automated trading systems are gaining popularity in this fast paced commodity trading world. More and more exchanges are offering electronic trading platforms at discounted commissions makes it easy to use Systems for trading. Trading systems range from just identifying a trade to fully automated systems. Using fully automated trading systems take the emotion piece out of trading life. This is a big advantage. pre-determined stop losses, automatic exit points and restricted trades are always good to have and common in most trading systems. Comparing trading system performance must factor commissions and slippage. Without commissions and slippage, most of the trading systems seem to perform better, as soon as commissions and slippage are added, they seem to fail. Realistic factor must be considered when using considerable volumes relative to normal trading volume of underlying.

Trading systems are based on cyclical nature of patterns. They can be further classified into technical indicator based, trend based or seasonal. These systems carry the trades ranging from few minutes in short term to years in long-term.

Compare Trading systems:

sites like collective2.com, ats3200.com, StrategyRunner.com  and Worldcupadvisor.com track previous trades of trading systems and compare them to similar systems for performance.

Good features of a trading system:

  • Must be configurable to restrict daily/monthly/annual stop losses to fixed dollar amount or % of portfolio. As Market conditions change, No one trade should wipe-out entire trading account.
  • Commissions, Slippage and Realism-factors must be included in performance results.
  • Trade opportunities must be realistic or frequent enough for better usage of the capital.
  • Vendor must provide subscription based model rather than fixed amount for the systems. If the system works for few months and stops working, Trader will loose money in trading account a well as money paid for system. Subscription model saves user and demands tweaked system from the vendor.
  • Vendor/Developer must provide normal trading volume of underlying and address gap-up, gap-down historical data for the underlying.
  • Free Trail is always good. nominal fee for trail is reasonable.