Define the word SYSTEM as it relates to your trading

Discussion in 'Strategy Development' started by scalper21, Jul 16, 2006.

  1. The reason I wanted to start this thread is the word SYSTEM is used often on this board. It is a term that is assumed to be understood and easily defined. I think it is overused and vague.

    I could be wrong. Maybe everyone does have the same definition for the word system and I am the oddball!!

    My simple definition of system is defined below. I look forward to reading your definitions as they apply to your trading

    Scalper21 System

    My system is not automated. I am a chicken pecker.

    I will make any trade that I feel has a chance of profitability. My trade entry system is very fluid and can change by the hour, minutes, even seconds. One trade might be a scalp another a momentum trade and another countertrend. In a sense my intraday trade entry system is based on getting a feeling for intraday movement and trying to find profitable trading setups.

    My static system is 95% post trade.

    1)Keep losers small!--- This is done primarily two ways. One by exiting losers quickly. Second most of my losers are smaller quantity that my winning trades.
    2)At the end of the day I should be profitable everyday. This is accomplished by trading actively. With extra activity I can rely on law of averages to be in my favor by the end of the day.
    3)Trade a contract that has intraday volatility which will allow for rule #2 to be accomplished. Currently ER2 is the contract of choice.
    4)Press winning trades. I try to add to winning trades. The objective is to have a large difference between the average winner and average loser by the end of the day.

  2. This isn't really a system.

    A system is self-containting. It has predertimined entries and exits.

    Discretionary system is an oxymoron.

  3. scalper,

    Of course, many terms have lost all their meaning when shoved back and forth between market-luck seekers.

    For an authorative definition of SYSTEM, look at any book of system analysis.
    Within what you call "this board" - and many others - the only thing that SYSTEMS have in common is that they are called SYSTEMS.

  4. In your opinion a discretionary traders "trading rules" cannot/should not be considered a system?

    Basically if the decision is derived from the brain it cannot be called a system?

    A system in your opinion is coded. It is 100% automated. The only discretion involved is in its design?
  5. The reason I bring this topic up is I am a discretionary trader. I have not automated any of my trading. In your opinion can I describe my trading rules as a "system"? Or should the word system only be used in regards to trading that is automated?
  6. scalper21,

    I don't think that it has to necessarily automated. If your program was smart enough it could copy a "discretionary" trader. And you could automate that.

    But yeah if you use descretion as to where to exit it doesn't qualify as a trading "system".

    A trading "system" should allow for someone else with very little training to enter and exit pos. for you, if you are away.

    ex. if market x goes up two days in a row buy at close. sell at next close.

    A system is biology, business, or astronomy is different.

    This is the widely held meaning of trading "system".
  7. They're pretty much correct in their definitions of system S21:

    ImamicPH's post is particularly succinct in that it gives you other fields/disciplines/endeavors to look at and use as a reference point for the definition of the word system and how to use that information to help understand, develop and codify your trading.

    Of course, you and I both know it is very hard to quantify all of the different parameters which exist in the market and create one unified theory (read: system) which will give you optimal protection from losses and deliver profitable opportunities whenever they should arise ... that's holy grail territory.

    However there is nothing saying that you cannot create and trade the same market with multiple systems ... and many traders do.

    Thanks for the thread.


  8. Mr B

    Mr B

    if you have a system you have a pre defined signal, entry, stop and exit for every trade.

    if you don't have a system you don't have a pre defined signal, entry, stop and exit for every trade.

    automated or not doesn't really matter. people had systems way before computers were invented I think you'll find.
  9. I'd say that a "trading system" provides automatible, non-discretionary answers to the following 5 decisions:

    1) Selecting which market(s) to trade and which instrument(s) within that market (e.g. the specific futures contract or option).
    2) The timing or pricing of each (long or short) entry into the market.
    3) The allocation of the amount of capital to risk in a given trade.
    4) The timing or pricing of the exit of each trade.
    5) When to stop following the rules that control the decisions in steps 1 through 4.

    The more discretion used in these five decision processes, the less the trader is using a "system."

    Discretion can vary greatly. I'm sure that some traders use a non-discretionary stop-loss rule for exiting losers, but a highly discretionary process for letting winners run. Other traders use a system of rules for picking the entry, but then use discretion in looking for confirmation of the entry or for timing the exact entry point.

    A 100% systems trader could, in principle, automate everything and, except for monitoring technical, data, and execution glitches, the 100% systems trader could turn on the automated system and walk away from it for hours, days, weeks, months, even years (assuming the system has a good approach to decision #5).
  10. That's what we all want. The ability to turn on the computer, go play golf, then come back and pick up the money...
    #10     Jul 17, 2006