Trading Systems, Trading System
Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.
A trading system is a set of rules and parameters that is used to determine the entry and exit points forbuying and selling securities, and some cases also futures. Trading systems that use a computer software program are called automated trading systems. The use of such trading systems has intensified with the continuous growth in the volume of tradeworldwide.
A trading system helps to deploy complex strategies easily. It is used for entering trading orders and their various aspectssuch as timing, quantity and pricing. Trading systems facilitate the management of market impact and risks involved, and thedetermination of opportunity cost.
Table of Contents
How does a Trading System Work?
A trading system is a complex interface comprising data, software, design and decision making processes. These systems conduct technical analysis using oscillators and moving averages to evaluate information for forecasting future prices. Relevant and reliable historical data is used for back-resting of trading systems. This makes it more effective to ensure profit earnings in any market condition. Trading systems must be optimized regularly so that they compute properly.
Advantages of a Trading System
- An automated trading system saves a lot of time for a trader, as computers do most of the actual trading and analysis.
- As human emotions often effect trading adversely, adopting a trading system cuts down this factor. Every order that is placed is based only on market data where the equity or futures is traded. Trading systems do not deviate from this pattern of functioning.
- Buying the services of a trading system lessens the work load on traders.
Disadvantages of a Trading System
- Before a trading system is brought into use, it has to go through lot of testing which means it involves considerable time and effort.
- The simulated results differ from the actual results to a great extent. This ‘slippage’ is one of the major problems of atrading system.
- Most trading systems are complex. They require the user to develop a thorough understanding of the parameters on which the technical analysis is based.
Traders can build their trading systems themselves. They can also opt to buy or lease trading systems that are developed by vendors. Whatever option is preferred, it is important to access reliable data generated by trading systems in order to understand market conditions.
