Stock Trading Systems
Have you noticed all the advertisements around for software that promises to buy and sell everything for you, from stocks to your mother’s kitchen sink? And most guarantee profits with the trade. Is it better to let the machine handle these things, or are you more of a “hands on” type of person? Taking a good look at stock trading systems may help you decide.
What is a trading system?
Simply put, a trading system is a collection of specific rules, called parameters, which determine the best entry and exit point for a given equity. These are the signals that are generally marked on a real-time chart and will cause the immediate execution of a trade by the trading system. An example of one of these parameters may be: “when the short-term moves above the long-term, buy; when the long-term crosses above the short-term, sell.”
The success of the overall system depends on how well the rules are written and perform. Success is a combination of the different rules used.
Why use a stock trading system?
As with anything else, there are advantages to adopting an automatic trading system, and there are reasons against it. We’ve listed a few here:
Advantages:
Systems Trade Without Emotion
Emotion can get the better of even the most seasoned individual trader. Once your system is developed and established, trading becomes an automated process, and not subject to human moods or inefficiencies. The machines don’t second-guess their decisions, like humans may do.
More Free Time
Once you have an effective system in place and optimized, you as a trader are not required to put out much effort. Computers can perform not only signal generation, but the actual trading for you. You don’t have to spend time going over data for analysis, making decisions and initiating trades.
Disadvantages:
Systems for Trading Stocks are Complex
The more they do, the more complicated they are. When they are being developed, trading systems demand a flawless understanding of technical analysis. You have to have a solid ability to make empirical decisions and a comprehensive knowledge of how parameters work. If you aren’t making your own stock trading system, it is still imperative that you be familiar with the parameters used in the system you are developing.
You May Incur "Slippage"
You’re going to have “slippage.” As a system trader, you’ll have to make some realistic assumptions to effectively employ the stock trading system. You have to make reasonable assumptions about transaction costs. This goes beyond just figuring the commission costs. Also, keep in mind that systems do not test accurately, so there will be a margin of error when bringing the system online. Problems that crop up, when simulated results are different from actual results, are known as “slippage.” If you don’t deal effectively with the slippage, the stock market system may not be as effective or successful.
It Takes Time to Develop
It can take a great deal of time to develop a trading system that actually works, and get it up and running properly. It has to be tested frequently, which takes time. Historical backtesting doesn’t take a great deal of time, but it isn’t fully sufficient alone. Your system will need to be paper traded in real time to make sure it is reliable. Slippage may require several revisions to the system, even after it goes live.
Putting together an effective stock trading system is no easy task. It necessitates a concrete understanding of the many varied parameters employed, and requires the ability to make realistic assumptions and a commitment to the time that it takes to develop the system. If developed properly, by competent people, a trading system can be a nice advantage. It can help increase efficiency, can give you extra free time, and can even increase your profits.
Pure Financial Academy Offers Trading Software
We make our extensive inventory of trading software available to our members. Whether you are a beginner or a professional, our selection of software can be used in myriad aspects of your trading.
Our software has an array of options to fit each style of trader. Our software options include:
- An automatic trading system
- Custom day trading indicators
- Supply and demand zones
- Order flow analysis
- Fibonacci ratios
- ninjatrader indicators
The options available in PFA’s software are there to help you fulfill your trading needs and to help get you on your own path to success. All of our software is covered in our live training room. This provides you with an optimal learning experience on stock, forex and futures trading systems. All of this falls in line with our ultimate goal: providing you the best education and trading strategies possible.
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