What are trading systems?
A trading system is simply a compilation of objective trading rules and algorithms that are quantified and collected into a complete approach. What's interesting is that even the most logical and valid indicator or indicators, once developed into a system with risk management and defined entry exit seems to lose its effectiveness. What is it about a trading system that causes seemingly effective indicators to fail? There are many reasons. Here are just a few:
In making decisions that are NOT objective, traders often violate their own rules. When one adds the specificity and objectivity of a trading system, one eliminates the intuitive and subjective inputs. This can work in favor of a system but frequently works against the result since traders often delude themselves when using subjective indicators.
Traders often mentally test indicators and combinations of indicators on a very limited amount of data history. Hence, what they think is real in terms of performance isn't real but rather a wish developed on a small sample. When the method is objectified and tested rigidly on a large span of data the results often disappoint.
The added element of risk management in the form of stop losses can either help or hurt a system. When traders use a method or an indicator in an unsystematic way, they often fail to include a specific method for limiting risk. When this is added to a method in order to develop it into a system, the results can vary. Most often the addition ofspecific rules of risk management will decrease the accuracy of an indicator since traders who do not use a system are apt to let their trades ride without specific risk limits.
When indicators or methods are back-tested on a large amount of data their performance tends to deteriorate since they are subjected to all types of markets. Typically, the farther back one tests a combination of indicators, the worse their performance gets. This often leads traders to optimize their indicators and systems. In other words, since what they were using fails to work, they ask the question: what would have worked?; Once it is discovered, they use the new indicators, not knowing that they will likely fail to go forward in real time with the same results as the back test.
Automated System trading with investorseurope
investorseurope has experience with several different trading systems, and will help match traders with a trading system that best fits their risk and reward profile. We specialize in operating trading systems for traders who do not have the time, patience or discipline to do so on their own. We will operate the system while the trader maintains control over their own account, directing Investorseurope Ltd on what system to trade, when to start or stop trading and how many contracts to trade. Investorseurope's brokers are fully trained and licensed in all aspects of trading the various systems. Whether you utilize your own system or utilize a commercially available system, we will put your trading strategy to work for you.