What does a trading system mean ?

Hi Guys,

I am a newbie to trading and want to understand what does one mean when they advise that "you must develop a trading system/strategy that suits you and back test it"

What is a trading system ? What are its components ? Does it mean something automated only or could it also mean something manual ?

Could you please give me a hypothetical example of a trading system so that I could understand better what one means by a trading system ?

Also, what is backtesting ? Is it like trading on a previous session by applying your strategy (manual or automatic?). How does it help given that no 2 trading sessions are similar (not sure if this assumption is correct )

Thank you

 

A trading system is putting the market in a can. A true trading system measures the volatility of the trade and attempts to adjust the ups and the downs on the fly.

ES

 

A trading system is rules-based trading. It should help you determine when to enter, when to exit, and under what conditions.

Backtesting is accessing historical data to help determine what rules may put the odds in your favor while entering and exiting trades.

Example: A study of historical data tells you that 68% of the time on stock symbol FPDX, you would have made a 1% profit if you had entered the trade at a level today that was 97.8% below the low yesterday, and you would have exited the trade at the close of trading 3 days later, or when you had a profit of 1.6%, whichever came first.

 

Set it up as an If/Then scenario. If the market does this Then I will do this.

 

Google is your friend:
https://www.google.com/search?q=trading+system

 

The book ‘trade your way to financial freedom’ is a great source of information for beginners looking to learn about trading systems. Highly recommended.

 

why does it need to measure volatility and attempt to adjust ups/downs on the fly? Buying any etf that drops 5% in a day is a system

 

I might try and fade it...

 

Ah, Another system.

 

%%
Mostly auto;
but never really can get away from a human brain/discretion.Yes; get long when SPY is above 200 day moving average; with discretion . So that works in day trading or 4 times better, with 50 day moving average.[4X50=200]?? NO; not for almost all.Another example of a trading system is buy some systems in traders magazine/newspapers + get ripped off.