Systems trading refers to trading in a mechanical manner without discretion.
For example:
Go long if the price breaks above the 50-day high. There’s no discretion to this statement.
You buy when the price breaks above the 50-day high — not the 49-day or 51-day, but, the 50- day high.
In other words, systems trading only deals with things that can be quantified.
If there’s subjectivity involved, then it’s not systems trading.
So things like drawing Support & Resistance, Trend lines, Chart Patterns, etc. are not systems trading.
Make sense?
The benefits of systems trading
As a systems trader, there are benefits that come with it which you won’t get from
discretionary trading. I’ll tell you more…
You can validate your trading strategy in a few seconds Unlike discretionary traders which takes a few months to validate a trading system, systems traders can accomplish it in a fraction of the time.
Here’s why…
You can code your trading system in machine language and run it against historical data.
This means you don’t have to manually backtest your trading system as the machine does the work for you (and it usually takes less than a minute).
Now, I’ll be honest.
Writing the code for your trading system takes time and it can’t be done within a few minutes. And if you don’t know how to code, that makes things worst.
But don’t worry, there’s a solution for it and I’ll tell you more later. No more second-guessing yourself (or your trading system)
Let me ask you:
Have you ever analyzed a chart and wondered to yourself…
“Should I buy right now?”
The market looks like it’s ready to move higher but, you’re uncertain because there are “things”
which could cause the price to reverse against you.
So, you hesitate.
The next thing you know, the market took off like a rocket and you wished you were in the
trade — ouch.
So here’s the deal:
If you don’t have a quantified trading system you’ll always second guess yourself with what ifs, should haves, and could haves.
But if you have a proven trading system, then it’s a matter of execution, following the rules —
with zero subjectivity.
You have the freedom to do the things you love
As a discretionary trader, you can’t help but watch the charts regularly.
For example:
If you trade off the 1-hour time frame, you’ll need to check the charts once every hour.
If you trade off the 15-minutes time frame, you’ll need to check the charts once every
15 minutes.
But as a systems trader, things are different.
You have the freedom to do the things you love without being glued to the screen.
Why?
Because once you’ve developed your trading system, the machine does the hard work for you.
This includes scanning thousands of markets for your trading setup, placing orders on your behalf, and even managing your trades from start to finish.
It’s crazy.