What is a Trading System?

What is a trading system?

A trading system is a tool used by traders that use objective entry and exit criteria based on parameters that have been determined by historical testing on quantifiable data.

Trading markets using a trading system provides the discipline to overcome the fear and greed that in many cases paralyzes a trader and prevent making timely decisions. Each order placed is governed by a pre-determined set of rules that does not deviate based on anything other than market action.

Why should I trade a system?

Trading the futures and equity markets using a trading system provides the discipline to overcome the fear and greed that in many cases paralyzes a trader and prevent making timely decisions. Each order placed is governed by a pre-determined set of rules that does not deviate based on anything other than market action.

The SET Investments’ systems are based on a series of rules involving trade methodology, capital management, market risk and the diligent application of those rules. Before choosing a system, it’s very important that you know its history of results and the edge it is likely to provide. An edge means that the system is profitable in the long term. It doesn’t, however, mean that all trades will be profitable, and indeed all trading systems will have periods of drawdown, that is periods of capital losses. It’s an inescapable part of investing in the markets.

So how do we measure the quality of an edge? It’s called “expectancy”. Expectancy allows us to compare one system against another, or against a simple buy and hold approach. Expectancy considers both the win rate (number of wins and a number of losses) and the profit factor (reward to risk or simply how much bigger the wins are compared to the losses.