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:
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?
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.