Beginners, don’t worry if you don’t understand when you read this manual. We will explain how to code your technical analysis strategy in the “Code your strategy” section.
A trading system is basically a set of rules that determine entry and exit points for any given stock. Traders often refer to these points as trade signals.
A trading system is objective and mechanical. The purpose is to provide a strategy to produce profits greater than losses by controlling your trades for you.
This chapter provides hands-on learning by teaching the trader how to translate Trading System rules into script form using real trading systems as examples.
Trading Systems usually include one or more technical indicators in their implementation. For example, a Moving Average Crossover system would buy when a short-term moving average crosses above a long-term moving average and sell when a short-term moving average crosses below a long-term moving average.
Trading Systems may have any number of rules, such as don’t buy unless volume is trending upwards, or exit if Parabolic SAR crosses the close, etc.
The actual profitability of a Trading System depends on how well the Trading System’s rules perform on a trade-by-trade basis. Traders spend much of their time optimizing their trading systems in order to increase profits and reduce risks.