A Look at the Advantages of Using a Trading System.
So whether you are planning to invest in either Forex or the stock market it might be handy to have a trading system in place before you start trading. As this could assist you to become more profitable.. But firstly before you do commence trading , it might be a good idea to have an understanding of what trading systems are and how they operate.
A trading systems relates to particular rules or guidelines that ascertains the points of entry and exits.
These are commonly referred to as Signals for any given stock.They are often shown on a chart in real time and these signals will prompt you as to when it is the right time to either enter or exit a trade.
The following technical analysis tools which give out these signals are most commonly used. These are the moving averages, Bollinger bands, stochastic, relative strength, and oscillators. Just about most of the time a combination of these tools will determine a signal for either entry or exit.
What are the benefits of a Trading System.
1. Using a trading system can increase a traders profit.
Dealing with losses can be one of the hardest things a trader has to cope with . In an effort to recoup the money they lost from trading,this is the time when traders usually make hasty, unwise decisions and therefore can lose even more money in the process.
Because most of these trading systems are automated there is no need for the trader to make any decision, as it is the software that decides when it is the best time to enter and exit trading. Thus by doing so, losses will be minimised and therefore there is a greater opportunity for increasing profits.
2. Using a trading system is not time consuming
Again because most systems are optimised and automated, the trader does not need to spend a lot of a lot of time analysing and executing trades. This is because the system has been designed to both generate the signals and to execute the actual trade.
3. Extremely versatile because they have been previously been optimised By other people.
As you would be well aware there are a lot of trading systems available out there that have been highly-developed and are currently being marketed. Unfortunately when it comes to using these trading systems developed by other people the use of them will usually entail a payment of a tidy fee of some description . Plus you also you need to be very careful when choosing a company because many of them are fraudulent and are not delivering the goods as advertised.
There are also some pitfalls of trading systems that you also need to be aware of. While they may have many advantages, trading systems are not perfect and each have their own disadvantages.
Being too complicated.
This can be one of the biggest disadvantages of a trading system. For when someone creates a trading system, not only will they require a substantial knowledge of technical analysis but they will also need to possess an ability and a comprehensive understanding of how the functions of the parameters and various signals work.
For a system to become effective, the trader needs to have the knowledge of how to distinguish simulated reults from the actual results. This in technical terms is known as “slippage” and this can constitute one of the major pitfalls in the effectiveness of a system.
Development of your own trading system takes time.
The undertaking of developing your own trading system is very time consuming. Getting it to run and work effectively as well as testing it may take some considerable time and effort. Plus on top of that you will have to do paper trading in real time to make certain that your system is reliable and works correctly. Remember that the factor of slippage may also come into play, which will then require you to possibly completely revise your system.
As previously mentioned above, you need to be very careful when choosing a system, as there are firms that are out to get your money and offer a system that does not work. However, there are also sound companies as well so you should check out the difference between the two.
If by chance you are thinking about trading in Forex, we have a few Forex trading systems available for free in our comprehensive Forex section here on Asxnewbie .