Trading Systems – Build or Buy?
Building a system
To do this, you will need lot of testing data, and you will need a mental map of how the market works, and be able to translate this into trading rules on a computer. If you can’t do this, you can employ someone who can do the software development.
The critical success factor is testing the system over a variety of market conditions. This is called backtesting.
When you develop a system, it is tempting to fine tune it by adding multiple rules and exceptions. This generally won’t work in the real world. You should aim for a system with a minimal number of variables (degrees of freedom). Also, you should test on data that you have not used to develop your model. This is why you need lots of data.
It is hard to develop a good system. But when you do, you will be able to be confident that it works and has been properly tested, not just cobbled together for sale to others.
Conclusion
In summary, I strongly recommend developing your own system (perhaps based on a disclosed system) rather than buying something off the shelf. You will be able to be far more confident, and have a much better chance of success. Remember, there are few secrets in trading, and simpler is usually better.
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Tags: Building systems, Trading Systems