|  MAR 1996

V.14:3 Developing a Trading System by Greg Morris

NOVICE TRADER Developing A Trading System On the road to using technical analysis for trading, developing a trading system is a logical step to take along the way. Here are some guidelines to develop a basic system. by Greg Morris Beginners in the art of technical analysis using indicators should not recoil at the mention of a trading system, because a trading system is built upon one or more indicators used in a systematic fashion. The advantage is the user can take the indicators beyond a seat-of-the-pants approach, develop some rules and test applications. Here, we will deal with the development of a trading system from an idea built on Bollinger bands, a well-known indicator. The trading system discussed is fairly straightforward, but the concepts can be applied to any degree of system complexity the reader desires. A trading system means different things to different people. Some focus on finding the ultimate system that will fulfill their desire to gain great wealth from the marketplace. Others, however, just enjoy the art of building a system, then tinkering with it endlessly. What, then, is the real purpose of a trading system? Personally, I design them to assist in making trading decisions in the markets, to help me overcome the demon of emotion, and to separate fact from fiction. In fact, this is what I, at least, believe technical analysis is all about. A trading system is a sound approach to discovering the technical approaches that work in the marketplace. That said, a trader benefits by using a system to assist in making trading decisions. This system should be based on methods and analysis that the trader fully subscribes to. It would be foolish to think that one could use a trading system based on a methodology that he or she didn't fully trust.

by Gregory L. Morris