10 Commandments for Trading Systems

The 10 Commandments for Trading with Automated Trading Systems. Master risk management, strategy, and discipline to enhance your trading performance

ALGORITHMIC TRADING

Javier González-Barros, CFTe

1/11/20243 min read

You shall:

a computer screen with a line graph on it
a computer screen with a line graph on it
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liderbot

1. Demand verified results of at least 4 years: This emphasizes the importance of long-term performance data to assess the reliability of a trading system or strategy. It helps filter out systems that may have performed well by chance in the short term but lack robustness over longer periods.

2. Activate and deactivate systems in moments of calm: This suggests adjusting your trading strategies during periods of low volatility or when the market is not in turmoil. It's a reminder to make strategic decisions with a clear mind, rather than reacting impulsively to market noise.

3. Do not increase the number of active units when approaching the maximum drawdown: This principle is about risk management. It advises against compounding your exposure when your investments are nearing their lowest point in terms of value lost. This helps prevent amplifying losses during downturns.

4. Use systems without considering your market expectations: This tenet promotes an objective, system-driven approach to trading, free from personal biases and predictions. It encourages trust in your trading system and its rules, regardless of your personal market outlook.

6. Do not accept advice from those who sell courses: This warns against the potential conflicts of interest from educators who might prioritize their earnings from selling courses over providing genuinely profitable trading advice. It encourages due diligence and skepticism towards educational offerings.

7.Do not consider yourself smarter than a system: This is a humility check, reminding traders that overconfidence in one's ability to outsmart a well-tested trading system can lead to disregarding established rules and, consequently, increased risk of loss.

8. Diversify your investments: This classic investment advice is about spreading your capital across different assets or strategies to reduce risk. Diversification can protect against significant losses, as not all investments will likely fail simultaneously.

9. .Do not trade until you have created a portfolio: This principle suggests having a structured approach to trading, with a diversified portfolio set up before engaging in transactions. It emphasizes preparation and strategic planning ad hoc trading decisions..

10.Enjoy trading: Despite the emphasis on discipline and rules, this tenet reminds traders that trading should also be a source of enjoyment and fulfillment. Passion for the process can contribute to perseverance and long-term success.

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