Systems Trading? Anyone Know What This Is?
Q: OK, I have a question. A friend of mine has a friend that does a thing called systems trading. It is kinda like day trading but you use the money from the person you are trading for instead of your own. You are in a room with other system traders, and You use a system (computers, tickers, etc..) that tells you when to buy, sell, etc...You keep 30% of what you make, and get paid every 3 months. They start you off small, with like $25,000, limit you to like 100-300 shares, and blue chip stocks. As you progress, you get a bigger bank roll, more shares to trade, etc. My question is, does anyone know of any places in New York (even Long Island) that do this? I am interested to look into other places besides the one my friend's friend works at. I would also like other people's opinions, experiences, etc.
A:
System trading in general means to trade a market with a mechanical
system, there are no decisions left to discretion. A simple system
might be the following:
RULE 1
BUY IBM if the 3 day simple moving average crosses above the 12 day
simple moving average.
RULE 2
SELL IBM and short it if the 3 day simple moving average crosses u
the 12 day simple moving average.
System trading is very common in futures, but far less common in
stocks. the most popular software to trade systems is most likely Omega
Tradestaion
http://www.omegaresearch.com/tradestation/
Literally thousands and thousands of systems have been developed over
the years and most people design their own and others try to sell
theirs. Stock And Commodity magazine reviews systems almost monthly
http://www.traders.com/
What your friend does is very rare...sometimes people that believe they
have a great system, might be able to watch one or two markets
themselves, so they hire people to work for them and give them a cut of
what they make just so they can trade more markets. There was a future
trader named Richard Dennis...have you seen the movie "Trading
Places"...it is based on the story of Dennis who has a bet against his
partner "Eckhardt", that people could be taught to trade. They gave 10
students $250,000 each and told them their system and asked them to
trade. The results were remarkable and the students were almost all
very successful. They eventually became known as the "Turtles".
http://www.turtletrader.com/it.html
It's called "Systematic Trading", and although most daytraders are systematic traders,
most systematic traders are not daytraders.
Among the many benefits of mechanical trading is that it removes investor ego from trading decisions.
It also reduces emotion and stress and most important of all, it provides the investor
with a predetermined sell discipline.
Elder's book describes 3 systems, one of which I use, adapted some for
my own trading style - the triple screen sytem. Parts of it can be
programmed, and I have configured my software to do this, but I don't
think all of it can be programmed - some human decision-making is
involved. I have not read his material on the other two systems yet,
so I can't answer how automatable they are.
Schwager describes several systems in his book, but presents them as
examples that you can learn from and perhaps modify to create your own
system, rather than being good enough to use currently as is. I recently
purchased the book and haven't gotten to this section, so I can't say how
automatable they are.
If you're looking for a black box system - one that just takes your stock
data and gives you buy and sell signals, I think that is rather risky.
Markets can change and such a system will not be able to adapt (unless
perhaps it's a sophisticated AI system, but I don't think such a system,
which works well, exists). There may be software that provides one or more
systems and is fairly configurable. This might work for you, but I think
you'll still need to have a good grasp of TA to be able to use it
effectively.