Technical Trading Systems, Part 2: Designing the Framework

April 19, 2014

In the first installment of this series, I offered a broad overview of technical trading systems to serve as a foundation for this and subsequent articles. In that article, I referred to a trading system as “simply a set of specific trading rules or parameters that determine the entry and exit points when trading a given security.” A few readers suggested that I had taken an overly simplistic view of trading systems, correctly pointing out that a trading system is much more than just a tool that identifies the entry and exit for a position. In fact, they pointed out, the entry and exit points of a trading system are only a small, albeit important, element in an overall trading system.

These comments actually segue perfectly into the second part of this series, in which I walk you through the considerations and steps to develop a complete technical trading system, covering principles that are essential to an effective system. Here, I discuss a theoretical framework for you to use when designing your own trading system.

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