Chapter 17

Considering a Trading System

In This Chapter

Introducing trading systems

Going over some problems you may encounter

Abiding by the rules

Deciding whether or not to buy a system

Selecting a system that works for you

The technical-based trader uses indicators and trading rules to plan as many decisions as are possible. To remove human judgment entirely, some technical traders go whole-hog and design trading systems. A strict, fully mechanical trading system automates the trading process by making every decision a rule-based decision. You have no discretion over any aspect of any trade.

By the time you enable your computer to execute the trades as well as determine them, you have built a robot. Robo-trading or algorithmic trading is all the rage now that computing power has grown so enormous. Even a modest robot can have 5,000 (or 50,000) lines of code for just the indicators, and that’s before applying trading rules to generate the buy/sell signals.

But should you build a trading system? The straightforward answer is “no.” For nearly everyone, building (or buying) a trading system is a bad idea. To build one, you must have advanced mathematical and computational skills. Plus, you need literally thousands of hours to devote to it. A complete trading system can take years of full-time work to develop (or hundreds of thousands of dollars to have custom built). Third, after you get started, it’s hard to stop. You can always find one more contingency you want to cover or ...

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