Systematic Trading

Learn about Systematic Trading and how AlgoStrats develops systematic Trading Strategies

What is Systematic Trading?

While a discretionary trader looks at market prices, news and charts to come up with a subjective trading decision, a systematic trader will follow his trading rules which consist of clear, 100% objective rules as to when exactly enter and exit a market. These trading rules could, for example, be based on statistical observations or specific price patterns that have been validated before.

Here's an example of what a monthly trading pattern system for the S&P 500 could look like:

  • Buy at the open of the next trading day if today's close is higher than 252 trading days ago and if today is the 10th trading day of the month.
  • Exit the trade at the open of the next trading day if today is the 12th trading day of the month.

Such rules are unambiguous and leave no room for interpretation. As such, they can be validated based on historical data to see if they are likely to provide a statistically significant edge in the markets or not.



Why Systematic Trading?

We're human

As humans, we're subject to cognitive biases that can result in irrational and emotional behavior. While these can be avoided it's not easy as we're often not aware of them. A systematic trader not only avoids these biases but can actively exploit them.

Confidence

You can test and validate a trading idea instead of blindly believing in it, whether it's entry-signals, trade-management or position sizing and equity trading models. This helps you to trade with confidence, especially during drawdowns.

Balance

Making trading decisions on a trade by trade basis can be quite exhausting. Trading systematically, you just follow your rules and execute the trades. This way you stay out of the decision process and can detach yourself from the markets more easily.

Freedom

When you got interested in trading, was it really your vision to sit in front of a trading screen all day long? Trading systematically you simply place your orders at specific times and walk away.

Life happens

You will have days when you are not on top of your game. Not having a systematic approach, this is when you'll be at a very high risk of making irrational trading decisions that often are very costly.

Diversification

While most discretionary traders are attached to a specific style of trading, free from cognitive biases, a systematic trader can trade all kinds of markets and systems at the same time.

AlgoStrats Strategy Development Process

  • Research & Development

    Marco's proprietary market research and system development platform allows him to analyze data from unconventional perspectives and come up with innovative ideas and systems.

  • Validation

    Less than 1% of potential trading system candidates pass Marco's very strict validation process. This process includes statistical validation, out of sample as well as live testing.

  • Integration

    Once a new System is ready, it is added to the system portfolio only if it really helps to decrease risk and improve overall performance, considering correlations to existing systems.

  • Monitoring

    As our backtests consider trading costs, market liquidity, BID/ASK spread and multiple data sources are used, there are hardly any surprises. Still, Marco keeps a close eye on any abnormalities.

AlgoStrats Quant Services

Here's an overview of our products and services focused on systematic Trading. If you have a specific request for a service or product not listed, don't hesitate to contact us.

AlgoStrats:FX

Follow Marco trading a real money account using a portfolio of actively managed Systems in the Forex markets.


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AlgoStrats Consulting

Want to learn about Systematic Trading? Stuck in your trading looking for new, unconventional ideas? Check out Marco's Mentoring and Consulting services.

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Ambush Signals

Ambush is a mean-reversion day trading System focused on a variety of Futures markets. With Ambush Signals you can subscribe to and easily follow the Ambush System.

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