Every trader want to develop/Learn a winning trading system It doesn’t matter if you purchase one and tweak or develop out your own trading system.
A trading system is a set of rules that gives buy and sell signals without any ambiguity or any subjective elements.The primary aim of a trading system is to manage risk and to increase profitability in any market environment.
We share level like this on our site which is generated using our system
Buy above 139 Tgt 141, 144 and 147 SL 137.5
Sell below 135 Tgt 133, 131 and 128 SL 137
Trading systems is the backbone for all types of traders. While money management and risk management plays a major role in determining one’s success in trading, without a trading system or a strategy a trader has nothing else to do but to sit on their hands.
What are the different types of trading systems available?
Trading systems can be broadly classified into two types:
- Mechanical Trading System
- Discretionary Trading System
What is a Mechanical Trading System?
As the name suggests a mechanical trading system is based on a set of trading rules. The trading rules are developed when technical indicator trigger a buy or a sell.
Mechanical trading systems are systems that generate trade signals for a trader to take.
They are called mechanical because a trader will take the trade regardless of what is happening in the markets. System Like SAR (Stop and Reverse),Moving Average Crossover
In theory, this should eliminate all biases and emotions in your trading, because you are supposed to follow the rules of your system NO MATTER WHAT.
A buy or a sell trade is initiated when the trading conditions are met.
An example of a mechanical trading system could be something as simple as a moving average cross over.
Moving Average Crossovers(MACO)
Two moving averages can be used together to generate crossover signals, crossovers involve one relatively short moving average and one relatively long moving average. As with all moving averages, the general length of the moving average defines the timeframe for the system. A system using a 5-day EMA and 20-day EMA would be deemed short-term. A system using a 50-day SMA and 200-day SMA would be long-term.
A bullish crossover occurs when the shorter moving average crosses above the longer moving average. This is also known as a golden cross. A bearish crossover occurs when the shorter moving average crosses below the longer moving average. This is known as a dead cross.As Seen in below example of Indusind Bank when 5 EMA (Orange) crossed 20 EMA (Blue) on downside its formation of bearish crossover and Indusind Bank entered in downtrend correction from 1200 to 300.
Many of these systems DO in fact work. The problem is that traders lack the discipline to follow the rules that go along with the system.
Creating mechanical trading systems isn’t that difficult. What is difficult is following the rules that you set when you do develop your system.
Pros and cons of a mechanical trading system
A mechanical trading system is good when:
- The rules are very clear and leaves no room for any discretion
- It can be easily back tested to check the past performance of the trading system
- Traders can view the back testing and forward testing data to further fine tune the trading system
- A mechanical trading system leaves out any room for emotions and is purely based on logic
- There is no need for human interference for a mechanical trading system
A mechanical trading system is not always ideal in conditions such as:
- Uncertain markets where we saw volatile move in market can cloud the trading system’s ability to trade
- Using too complex or custom indicators or trading rules
- Traders lacking Discipline.
All of this work will mean nothing if you are not consistent. If you are changing your trading rules “on the fly” or do not understand the psychology at work when you trade, you simply will not be a successful trader.The trading system must fit you.