Trading Systems

A trading system consists of a set of rules for viewing markets and making trades. The advantages of trading systems can be hidden when they become associated with trading platforms involving trade order submission and processing. A clarification of their roles can help explain the benefits of using a trading system. This can be done without identifying a particular platform or system. Once the platform infrastructure is isolated, a brief look can be taken at why a trader can benefit from a trading system.

An online trading platform consists of the infrastructure for viewing market prices and making trades. While platforms make use of user provided hardware and the internet itself, platforms consist of software linked to a database while displaying price quotes, enabling order entry and routing orders to an exchange. A platform of software and order routing services is provided by many brokers. It often includes programmable charting software that allows a user to select from an array of formats for price, volume and technical indicators. Links to real time databases are used by day traders while free delayed quotes are quite adequate for position traders who analyze data after the markets close to minimize the emotional stress of changing prices. Platform software saves time and reduces errors by automating repetitive tasks.

Some platform tools have become quite sophisticated, allowing a user to add his personal rules for making trades. Rules tell the software which set of indicators and prices to monitor and the levels at which traded instruments are to be bought and sold. Automated systems trading software are preprogrammed with trading rules enabling them to make trades with minimal user input. These software modules, designed by third party vendors to operate under existing platforms, are based on algorithms that identify price trends and market turning points. Since their accuracy is limited by the presumed market volatility, an algorithm is needed to recognize when market volatility falls outside the envelope for which the software rules were designed. The quality of a set of rules can be estimated from historical back testing on past market prices stored in a database. It is often pointed out that back testing lacks the realism of real time emotional stress and that past performance is not an indicator of future performance. While the latter is valid in all cases, the nature of trading system rules reduces emotional stress to the degree that the rules are consistently followed.

In any case, it is the rules themselves that comprise the trading system. In their purest form, trading systems take the form of a compact set of rules written on paper.

The ability to consistently make error free decisions amid changing prices in an environment of fear and greed is unlikely without the discipline that rules provide. It does little good to have all the price monitoring, charting, order submission and routing infrastructure if one does not have a consistent set of rules for making trades. Most of us find this out the hard way, judging from the statistic that only about 12% of stock traders are successful. For futures traders the number is closer to 5%. It is not just a coincidence that the percentage of traders that rely on a proven trading system is near these same levels. The consistent use of a proven trading system can be most beneficial to traders with all levels of experience.

Seeing the difference between trading systems and platform infrastructure makes the characteristics of a good trading system more obvious. A good trading system explains when trading should not be attempted, thereby, avoiding forced trading under inopportune conditions. It should specify how to independently generate a strong watch list of candidate trades to eliminate the need to chase after the latest hot tip from an advisor. For obvious reasons, a trading system should be easy to use, totally objective, take little of a trader's time and make consistent profits. It should also avoid large draw downs and give clear trading signals.

A trading system is best learned from a master trader who remains actively engaged in teaching. The master can help the student tailor the system to his personality, financial means, risk tolerance and skill level. The next best approach is to simply read what has been written and adopt it to one's personal situation. But under no circumstances should one try to wing it without the support of a set of trading rules. The advantage of rule based trading systems lies in their objectivity and consistency. When followed consistently, emotional trading and its associated errors are removed from the equation. As an investment, trading systems more than pay for themselves, not only in profits gained, but also in the amount of capital preserved. This is true not only for advanced automated trading systems but also for a compact set of rules on paper.

James Andrews publishes a newsletter at http://www.wisertrader.com where one can read about compact trading templates and advanced automatic trading systems. © 2005 Permission is granted to reproduce this article, as long as, this paragraph is included intact.

---

Google News Updated : Mon, 13 Oct 2008 11:51:33 GMT Manatee dies before reaching rehab site - Boston Globe WHDH-TV Manatee dies before reaching rehab site Boston Globe - 4 hours ago By Emily Canal After a 27-hour trip to Florida, Dennis the manatee, rescued from the frigid waters of Cape Cod, died in Orlando yesterday as SeaWorld employees carted the mammal to a rehabilitation center. Video: Rescued Manatee Dies After Mass. Rescue AssociatedPress Manatee rescued off Cape Cod dies en route to Florida Sea World New York Daily News WFLA - eFluxMedia - Cape Cod Times - South Coast Today all 565 news articles Publ.Date : Mon, 13 Oct 2008 07:21:21 GMT Forecast: Summery Sunshine Sticks Around - Washington Post Chicagoist Forecast: Summery Sunshine Sticks Around Washington Post - 2 hours ago Columbus Day will feel a lot more like Labor Day as temperatures climb to around 80 degrees. This unseasonably warm weather will continue for the next several days. Enjoy a warm, sunny Columbus Day Times Herald-Record Beautiful start to the work week The Star-Ledger - NJ.com The Capital Times - Journal and Courier - Richmond Times Dispatch - The Virginian-Pilot all 241 news articles Publ.Date : Mon, 13 Oct 2008 09:03:26 GMT Dodgers stand up to Phillies in Game 3 win - FOXSports.com Washington Post Dodgers stand up to Phillies in Game 3 win FOXSports.com - 4 hours ago by Ken Rosenthal Ken Rosenthal has been the senior baseball writer for FOXSports.com since Aug. 2005. He appears weekly on the FSN Baseball Report and MLB on FOX. LA revitalized at Moyer's expense MLB.com Kuroda's pitch serves its purpose for Dodgers USA Today New York Times - Los Angeles Times - Boston Globe - Philadelphia Daily News all 2,467 news articles Publ.Date : Mon, 13 Oct 2008 07:00:36 GMT European, Asian markets bounce back - The Associated Press Vancouver Sun European, Asian markets bounce back The Associated Press - 1 hour ago LONDON (AP) - European markets opened strongly Monday following Asia's lead in response to the widespread government efforts over the weekend to shore up the world's troubled financial system. The financial crisis A light at the end of the tunnel? Economist World stock markets welcome European bank rescue AFP MSN Money - New York Times - New Straits Times - Voice of America all 769 news articles Publ.Date : Mon, 13 Oct 2008 10:23:04 GMT 1.5 million G1 Android phones pre-ordered - TG Daily Product Reviews 1.5 million G1 Android phones pre-ordered TG Daily - 6 hours ago By Wolfgang Gruener Chicago (IL) - T-Mobile’s upcoming G1 may not be the best-looking iPhone rival, it may not have the most complete feature set and T-Mobile may have undersold the device at the recent launch event. Get ready for next-gen mobile InfoWorld HTC G1 Android Phone Racks up 1.5 Million Pre-orders eFluxMedia Brighthand - InformationWeek - ReadWriteWeb - ZDNet all 153 news articles Publ.Date : Mon, 13 Oct 2008 05:21:21 GMT UK government takes stake in three banks - CNN International Canada.com UK government takes stake in three banks CNN International - 32 minutes ago LONDON, England (CNN) -- The British government on Monday said it would make a multi-billion investment in three of the country's major banks to help them through the "first financial crisis of the global age. In quotes: Bank bail-out reaction BBC News TEXT-Lloyds TSB terms for acquisition of HBOS Reuters guardian.co.uk - Wall Street Journal - Bloomberg - AFP all 1,923 news articles Publ.Date : Mon, 13 Oct 2008 11:18:47 GMT Fantastic finishes: 5 NFL games down to the wire - Washington Post Washington Post Fantastic finishes: 5 NFL games down to the wire Washington Post - 3 hours ago Dallas Cowboys' Mat McBriar (1) has his punt blocked by Arizona Cardinals' Sean Morey as Monty Beisel (52) looks on during overtime of an NFL football game Sunday, Oct. 12, 2008 in Glendale, Ariz. Blocked punt downs Dallas San Francisco Chronicle Backups Burst Through Line and Lift Cardinals in Overtime New York Times Sports Network - FOXSports.com - Houston Chronicle - Philadelphia Inquirer all 749 news articles Publ.Date : Mon, 13 Oct 2008 08:15:50 GMT Rss Feed Reader Increase Web Traffic

PARLOT::Ebooks, Scripts, Websites, and more...

Adsense websites

Find Your Investing Soulmate on the Jersey Turnpike

As a followup to a previous column, "Irreconcilable Differences," I... Read More

Protecting the Tax Advantage of Your Deferred Compensation

The American Jobs Creation Act of 2004 imposed strict new... Read More

Day Traders and Swing Traders and Options? Maybe!

Typical day traders and swing traders look for stocks with... Read More

Realistic Investing Expectations

Over the long term stocks have provided us with great... Read More

Missleading Fund Names Wreak Havoc On Investor Returns!

Mutual fund managers use fake fund names to part you... Read More

Penny Stock Investing

The Nature of Penny StocksFor anyone new to investing in... Read More

Five Sure Fire Way to Secure Your Financial Future

"You can be poor when you're young, but you can't... Read More

Invest To Make Money, Not To Get Rich

The technology boom of the '90s romanticized the "rags-to-riches" ideal... Read More

Getting Started In Investing

Are you ready to open your pathway to financial independence?Well... Read More

Success Trading for New Traders: What Does Bid and Ask Mean?

Do you ever wonder exactly what's going on in the... Read More

High Volatility Investments

Penny stocks and options are high volatility investments that attract... Read More

Annuity Investment Guide

While there is not a lack of information on annuities,... Read More

The Realities Of Market Timing

Market timing systems are based on patterns of activity in... Read More

Help with My Annuity

The cries are heard from the distance, "I need help... Read More

Stock Market Money Management Skills

Let's start by saying: You can't be afraid to take... Read More

How Eating Bitumen Made Me a Better Stock Trader

Stock market trading is a fascinating activity.There are so many... Read More

Which IRA Is Best For You?

An Ira is one of the greatest ways to save... Read More

Discipline in Investing and Trading

Discipline can be simply defined as your ability to follow... Read More

Types of Investment

The word 'investments' is one that most of us are... Read More

Asset Allocation Lessons: The 70% Inflation Solution

For investors only... and for speculators who need to invest... Read More

Gold; What Type of Gold to Buy

JewelryThe advantages are:? Gold Jewelry is the easiest of the... Read More

Variable Annuities

You know all the articles you read about annuities that... Read More

Everybody Wants to Know How to Invest

Those unfamiliar with the process of making and managing investments... Read More

Foreign Investing - US Investors Still Missing Out?

Investors are still too slowly realizing what the academics have... Read More

Playing With Money - And Making More

Ready to start playing with your money? Not interested in... Read More