What is a Trading System?
A trading system is 'just' a set of rules that tell you how, without any ambiguity or any subjective elements, to trade stocks or derivatives. These rules are tested on past data with the assumption that they will work also in the future.
Every trading system needs to have three parts:
A Market Timing Part: Something to tell you whether to be long the market, short the market, or to be in cash.
A Selection Part: Something to tell you what to buy, when to sell, and when to buy something else.
A Money Management Part: Something to tell you how much you will invest in what.
There are many ways to build a trading system. Lots of people do not like the idea of a trading system at all. They prefer to rely on technical and fundamental data which is always interpreted in subjective ways. This is fine, but we think that if you are going to trade on the financial markets, then you should use methods which can be analyzed with some rigor and backtested effectively.