Systematic trade is a popular and potentially profitable way to trade various markets, including stocks, futures, and foreign exchange. In systematic trading, the trading system produces buying and selling signals using the specified set of trade rules. In many cases, the trading system can automatically so that it will automatically run buying orders and sell through the broker. The basic steps to start with systematic trading are presented below.
Step 1. Prepare your hardware. Most trading systems are designed to run on the Windows platform. Although it might not need to have a special machine to run a trading system, the computer must be quite new, preferably running Windows 7. Almost every new desktop computer will have enough memory, speed, and disk space to trade. It might be more important than a computer having high-speed internet access, especially if your focus is daily trading, where orders execution is fast.
Step 2. Choose the market. Systematic trade techniques can be successfully applied to various markets, such as stocks, ETFs, Futures (eg, e-mini S & P 500), foreign exchange (“Forex”), options, etc. Every market has its own characteristics, its own advantages and weaknesses. Different markets, such as futures, may require a different broker account from stocks or forex.
Step 3. Determine your trading style. Trade style can be characterized in terms of time period (trading day, short term (swing trading), long term), trend versus counter-trend, single market versus portfolio, etc. Day trade is often interesting because it comes out from the previous position to close tends to limit risk. However, a profitable trading strategy can be more difficult to find, and high frequency trade tends to be more stressful for many people.
Step 4. Choose the trade platform and broker. Some trading platforms are provided by brokers, while others allow connections to various brokers. The platform selection key is that the platform must be able to run strategies or trade systems. Some more popular platforms for systematic trading include tradestation, ninja traders, trade navigators, eternity, mulch, amibroker, and metatrader (forex). If you have chosen a trading strategy (step 5), this can determine the platform of your choice because most of the trading systems are available for a number of different platforms.
Step 5. Strategy. For those who have a tendency, building your own strategy can be a good choice. If not, the strategy can be purchased from the system vendor. Building a trading strategy can be a long process, trial and mistakes and usually involves programming in script languages supported by your trading platform. Whether developed or purchased, careful testing is needed to fully understand the characteristics of the strategy and to verify profitability.
Step 6. Fund your broker account. Some brokers, especially forex brokers, allow the size of a small minimum initial account. While it’s wise to start small, it is necessary to have enough funds to cover more than the biggest withdrawal expected from your trading system. This is where a good and detailed analysis of the performance of your trading system is very important to understand the type of loss you can expect when the system in the withdrawal period is called. Just like with small businesses, underfunding is one of the biggest contributors to failure. If you don’t have enough risk capital to fund satisfactory your account, it’s better to wait until you do rather than at risk of trading an underfunded account.
Step 7. Trade simulation. Before putting real money on the market, it is a good idea to utilize your trading platform trade simulator, if available.