ATFX - Several Mistakes in Building a Trading System (EA)

Misunderstandings in the design of trading systems

Myth 1: The trading system is the optimization of indicators

Many producers of trading systems believe that the trading system is an optimized indicator, so these producers are keen to use the indicator optimization function of stock analysis software such as analysts and SUPERCHAT to calculate each indicator every day and give specific parameters. In fact, these people make two mistakes. First, they mistake the predictive analysis part of the trading system as the whole of the trading system, ignoring risk management and investment strategy, but in essence these two parts are sometimes more important than the predictive analysis part. Second, the predictive analysis part of the trading system includes not only the optimization of indicators, but also the embodiment of investment ideas. First, when making the predictive analysis part, the producer must have a good understanding of the trend of the target variety and already have good technical analysis methods, even if it is not optimized, the producer can artificially analyze it more accurately. Second, the producer must combine a number of conditions, not only to optimize the existing indicators, but more importantly, to program his own analysis ideas, or to compile a new composite indicator. These composite indicators are debugged and then optimized to improve performance. Only in this way can the prediction and optimization part of the trading system be formed.

Myth 2: The total profit of a trading system is the most important, and the trading system that can achieve the greatest profit is the best trading system

The total profit of the trading system is indeed an important basis for measuring the quality of the trading system, but it is definitely not the most important. If the system that can obtain the maximum profit through historical data testing is applied in practice, many problems will occur. First of all, this total profit is related to the age of the historical data used to calculate. It may be that the profit in a certain year is particularly high, resulting in high profits in several years. Such a system is not advisable in practice, because we do not know whether the future market is similar to the market that has obtained high profits in the history of the system, or it is likely to be inconsistent. If the future market is inconsistent, the system cannot obtain high profits and may even lose money. Secondly, we should first avoid market risks in practice, and then obtain stable benefits on this basis. If we prioritize the pursuit of high total profits, we must bear greater risks. Therefore, the trading system should first be safe and capable of avoiding market risks. Secondly, it should be stable and able to guarantee profitability under different circumstances, and then obtain the greatest possible benefits.

Misunderstandings in the implementation of a trading system

Myth 1: Trading systems are used by many people and therefore cannot be profitable

This view is actually to confuse the trading system with ordinary and commonly used software. They believe that if too many people use it, it will be inaccurate and affect profits. Trading systems are very personal. They are the materialized embodiment of trading ideas. Because everyone's trading ideas cannot be the same, these trading systems do not produce consistent behavior during use. It is true that these systems are no different from commonly used software when used by too many people. In practice, profits will be reduced, but this may essentially be due to the quality of the trading system. After all, good trading systems can obtain high profits through the market.

Myth 2: The trading system is relatively mechanical and can only be used as a reference

People who have this view do not understand the essence of the trading system. The essence of the trading system is to help investors refine their trading ideas, form a standardized specification and restrain investors from investing according to the norms, and avoid losses caused by artificial mood swings. Trading systems are made by investors. If investors' trading ideas are more mechanical, the formed trading system will be more mechanical; if investors' trading ideas are more flexible, the formed trading system will be more flexible. Of course, not all investors can refine their ideas and form a trading system. Only mature trading ideas can form a trading system. In fact, the trading systems we can usually see are the optimization of some indicators, or predictive analysis systems that do not reflect risk management and trading strategies. These so-called trading systems are not truly mature trading systems, and they are indeed rather mechanical in the process of guiding operations.

Myth 3: The profit of a trading system is theoretical, but not practical

There are some trading systems that do encounter these problems, and most of these trading systems are trading systems with intraday signals. In practice, if you can't place an order through the computer in time after these signals appear, and you have to manually place an order after the signal appears every time, there will be a certain lag, and the transaction price may also be unfavorable. Therefore, the profit in actual operation is always not as high as that of a computer simulation. But the root cause of this problem is not that the profit realized by the trading system is theoretical, but that there are problems in the design of these trading systems. The purpose of a trading system is to provide investors with direct trading support and to help them abide by established principles. If it is not possible to use intraday immediate signals to guide operations in practice, the investor should follow the signals he can accept at a specific time, such as closing according to whether there is a signal to close. In fact, the signals given during the session are often false, such as the intraday price breaks through a key resistance level. Therefore, the trading system sends a buy signal, and then the price falls back below the resistance level, and the signal disappears. If this false signal is followed, unnecessary losses will be caused.