Trading Systems  |  NOV 2005

Improve Your Trading System With Speed by Gomu Vetrivel

Stocks & Commodities V. 23:11 (28): Improve Your Trading System With Speed by Gomu Vetrivel Constantly improving your trading system is the best way to improve the performance of your trading system. But what’s speed got to do with it? Speed has a lot to do with improving the performance of your trading system. As you’ll see, it makes all the difference. What is speed? Speed refers to how fast the price is moving. The average speed during the course of a motion is often computed using the following equation: Speed = Distance traveled by price / Time taken Try not to confuse speed with momentum. Momentum is nothing but speed with direction. For example, if on day zero, price is 100, and on day 1, price is 150 and on day 2 price is 100, then momentum on day 1 is 50 and on day 2 is -50, whereas speed on day 1 is 50 and day 2 is also 50. SO MANY POSSIBILITIES When price is going up, speed can increase or decrease. Similarly, when price is going down, speed can increase or decrease. Let’s look at the following two hypotheses: Hypothesis 1 A system can take a long signal when price is going up and speed increases. It can take a short signal when price is going down and speed increases. Hypothesis 2 A system can take a long signal when price is going up and speed decreases. It can take a short signal when price is going down and speed decreases.

by Gomu Vetrivel