Building Your Own Trading System – Part 1
Here are some answers that I will use for the system design that I will present in future articles:
- Understanding of trading – have read some material on trading and have knowledge of market concepts and trading mechanics. Not a professional trader.
- What to trade – either forex or futures (including stock indices)
- What asset to trade – one selected currency or futures contract only. No need to include an algorithm to select the contract or stock to trade.
- How much money will I put in my account – $5,000. I will trade with only $1,000 of this, with the rest as a reserve.
- Percentage drawdown – will aim for a conservative system with a smooth equity curve. Will aim to maximise Sharpe ratio.
- Skills and time for system development – have some basic Excel skills. Not a statistician or programmer.
- Trading frequency – trade a few times a week, aiming for intermediate to long term trends (not day trading). Using end of day data.
- Positions open at once – only one.
- Time available – 15 minutes in the evening
- Trading investment – have a PC and Internet connection. Do not own Tradestation or specialised software. Have access to Excel. Able to download free historical data for testing and end of day data during actual trading. Prepared to purchase some specialised data or low cost software as appropriate.
These assumptions are based around the skill levels of most people who are interested in starting trading. Hopefully they are realistic for you. If not, you can change the system accordingly.
So, we’ll look at a system that uses end of day data. Your trading will be limited to checking the numbers at the end of the day and buying or selling one contract or position. The system will be conservative and longer term in nature. Your system will be spreadsheet based.
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Tags: Building systems, Trading Systems