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My thoughts on System Trading ..


A trading 'System' is a fixed set of rules defining the entry and exits of a trade.A system can be fully automatic but can also be combined with human discretion that results in the application of the trading setup only when the trader thinks it will yield better results..


A system can be anything from a moving average crossover or a Parabolic SAR defined entry and exit to a general trend following method.But the thumb rule of trading a system is to always stick to the plan and let the markets decide the returns it wants to award you with on a particular trade. The importance of having a plan in trading is of utmost importance and having a fixed set of rules and following them strictly can only result in sustained continuous profits.

Also , i still am against completely mechanical trades also known as algorithmic trading which allow advance software's to take trades on behalf of humans as per the rules defined.Though the method is yet to mark its presence in India , sooner or later the bourses and brokers are ought to be ready with the technology needed to implement the system trading.

Recently a US market maker firm , Knight capital lost huge amount of money ( $440 million ) because of a computer trading error.The computer systems developed some problem and started sending erroneous orders to the exchange and before the company could find the fault , most of the damage was already done.As they say ' machines are not always useful '.A flash crash last year on US indices ( Dowjones fell almost 800 points ) is also credited to algorithmic trading errors.

Yes , these systems do help in keeping out human emotions of greed , Hope and fear which can be the biggest deterrent to successful trading , out of the game.But a little bit of human discretion before final plan can prove to be useful.After all fear and greed are not always bad.





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