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Design of the trading system

Even after successfully constructing and designing a working trading system, a trader may find that his or her system is less than perfect. Some problems may arise now and then such as an event that will keep generating losses. Perhaps the rules are too broad and they need to be optimized. This article will show you the in's and out's of troubleshooting and your trading system should also be optimized in order to maximize profits and keep the losses at a minimum.


Troubleshooting is a very important aspect of system development. A decent trading system will show a profit in most market conditions, but if it at times renders large losses, you will be able to work to not only identify the problem but work to solve it. the Here are four easy steps:

1. Identify the problem - In every instance in which the problem occurred during the backtesting and begin recording when you find that this problem occurs during live trading. In each instance, make note of any tendencies that follow these few factors:

  • Chart price or pattern series - there will be a spike in the prices.
  • Volume - Initially there will be a large volume and after that there will be a low volume.
  • Bid/Ask spread - If there happens to be a spike in price during a low volume, it may indicate a large spread.
  • Margin - if you use it.

2. Evaluate the problem - Use all pertinent information that you gathered to determine how the system malfunctioned or generated a loss. Oftentimes you can use your plain common sense or by the analysis of transaction logs which your broker provides for you.Here are some of the conditions of the four factors that you find listed above could be the reason for the identified problem.

3. Consider alternatives - Try some solutions to any identifiable problems. Consider some of the alternatives that correspond to the above problems.

  • Chart price series or patterns - One thing that is simple to do is to have the system wait until the price becomes more stable before buying. A rule of thumb to follow is to use the differences between any of the previous prices and current prices.
  • Volume - In order to solve this problem, you could simply wait until a stock has a certain amount of volume before a trade is executed.
  • Bid/Ask spread - Instead of the current price, you may want to buy and sell a stock that is based on the bid and ask prices.
  • Margin - If the risk is effectively managed, the using of margin can be successful as well as profitable. If you do not want to keep getting margin calls, then try to limit the downside.
  • Implementation of a solution - Now all is needed is to apply the solution to see how it works. Paper trading is a good idea before you trade with real money. You may find that there are additional rules which may limit the down days but it will also decreae overall profits.

Written by: Natali Ya

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