Elegant Automated Trading Systems : A Key to Success in Mechanical Trading

Even though there are many ways in which you can define successful automated trading systems I think that the word that describes them best is : elegant. While the large majority of traders seek systems that promise -and yet don’t deliver- massive amounts of profit those few of us who succeed by using automated trading systems have done so through the creation of systems that fulfill a series of very simple characteristics that make them robust, reliable and likely to succeed as market conditions change. On today’s post I want to share with you the characteristic of elegant systems and how this type of mechanical solutions are one of the many ways in which traders can actually find long term success in forex trading.

What is an elegant system ? To put it simply, elegant trading systems are those which are extremely simple regarding their coding and trading logic and yet extremely rich and deep in regards to the market inefficiencies they exploit. For example Watukushay FE, a trading system I developed which is available for free (http://watukushayfe.blogspot.com) uses a trading tactic that focuses around the RSI. The whole entry, exit and lot sizing aspects of this system can be coded within less than 50 lines of code, however the system exploits a very deeply meaningful aspect of market behavior that makes it extremely deep in meaning.

Watukushay FE is therefore a perfect example of what I consider an elegant trading system. You have a system that seems extremely simple but within it there is a very large amount of understanding and the solution to many important problems faced by mechanical trading systems. For example, Watukushay FE adapts its position sizes and exits against changing market conditions as well as using an internal closing mechanism to cut losses short and let profits run. This system contains within it the ability to follow trends, enter trends upon retracements and adapt to changes in market conditions all within a very simple coding framework. Watukushay FE shows you that it is meaning and NOT complexity what is bound to make trading system successful.

There are also many other advantages inherent to simplicity that make “elegant systems” much more robust and reliable than other more complex implementations. One of the biggest advantages of this type of systems and their low level of coding complexity is the fact that curve fitting them to past market conditions becomes very hard since the number of parameters – and the way in which they affect performance – is very limited. A simple system like Watukushay FE that works along a 10 year backtesting period shows that simplicity is able to maintain profitability amongst very varied sets of different market conditions.

In the future when you start developing your own automated trading systems bear in mind then that the complexity has to be within the amount of problems solved by the system and not by the amount of lines of code or indicators used by the system. The idea here is that complexity must be an inherent characteristic of what the system is doing and not of how it is being done. So even though the techniques used by Watukushay FE – for example- are exceedingly simple, they solve a very wide array of complex problems encountered in mechanical trading system development.

If you would like to learn more about automated trading system development and gain a true understanding and education regarding their use and development please consider joining Asirikuy.com, a website filled with educational videos, trading systems, development and a sound, honest and transparent approach automated trading in general . I hope you enjoyed this article ! :o)

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2 Responses to “Elegant Automated Trading Systems : A Key to Success in Mechanical Trading”

  1. Maxim says:

    Daniel,

    I totally agree with you! To my mind, another word, describing your approach, is harmony. Your systems attempt to be in harmony with volatility and thus, according to one of your last posts, to the market.

    Maxim

  2. Daniel says:

    Hello Maxim,

    Thank you very much for your comment :o) Yes, harmony is another interesting word that describes the concept. A system needs to be in harmony with the market in order to be successful under changing market conditions. You could even say "riding the waves of changing volatility". Thanks again for your comment !

    Best Regards,

    Daniel

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