New Book: The Short Guide To systematic And Mechanical Trading Systems
This book is meant to introduce systematic and mechanical trading for beginners, and contains 15 trading systems and strategies.
Systematic and mechanical trading strategies refer to automated trading using trading algorithms with pre-set instructions. The primary purpose is to remove as much human emotional behavior as possible from the trading process. Discretionary trading, conversely, is decision-based trading — the trader decides which trades to make based on current market conditions.
Trading involves making many decisions: when to buy, when to sell, when to realize a profit, when to take a loss, etc. All those decisions can be tiresome and sometimes very difficult to execute or even prone to emotional mishaps. With mechanical trading, the rules are preset and coded into a trading algorithm that executes the trades without emotions.
Essentially, the benefits of mechanical trading systems can be summarized into the following points: automation, consistency, saving time, probability-thinking, exploiting the law of large numbers, and creativity.
Opposite, discretionary trading is when decisions are made based on the trader’s personality and how they feel about the market. Most traders do this type of trading.
While some traders may figure out how to get in tune with the market, many other traders don’t get to achieve that and end up trading emotionally. Many traders are prone to second-guessing themselves and are poor at deciding when to trade and when not to.
By its nature, the discretionary trading approach is susceptible to the trader’s psychology. For example, no matter how profitable a discretionary trading strategy is, being too greedy or fearful can destroy its profitability quickly.
Thus, systematic and mechanical trading are very different from discretionary trading. I have been a systematic and mechanical trader and investor since 2001. Because trading and investing is such an emotional roller coaster, this is a much better approach to the markets than making discretionary decisions.
This is the reason for this book about systematic and mechanical trading. I aim to write an easy and short book that lays out the basics about systematic trading. I cover the most foundational concepts such as developing trading strategies, backtesting them, risk management, diversification, and why you should automate. This is a practical step-by-step guide. Not much knowledge is required before you start reading.
The first chapter defines systematic and mechanical trading, the second chapter explains how you can backtest , the third covers money and risk management, the fourth chapter covers the pull of trading biases, and the fifth chapter shows you a list of 15 trading strategies complete with trading rules and performance. The sixth and last chapter is about the secret sauce of trading: diversification and automation.