Trading systems

A group of rules that determine when and where to place an order, how many units to purchase, where to put the initial stop loss and take profit, if and how and where to move the stop loss and take profit, when to exit, and so on - all the steps involved in trading written down in logical steps.

Basically, it's a plan you follow while trading, in the belief that by following the rules you will tip the balance of probabilities in your favour. Maybe you got these rules from a book, or a seminar you went to, or the cab driver on the way to the seminar, or maybe you developed these rules yourself from many years of experience. It's not important where the rules come from as long as they are repeatable and profitable. What is important (aside from being profitable) is that you follow the rules quite strictly - otherwise there is no reason to have the rules in the first place.

Trading systems for automated trading
To have a computer do your trading for you, the rules need to be mechanical. A rule like "when in an uptrend" is not mechanical - the computer does not know what you mean. Certainly sometimes it is obvious to human eyes that the price is "in an uptrend". Other times it can be ambiguous - ambiguity by definition being not compatible with mechanical. But often you can develop mechanical versions of such rules. In this case an example might be to replace "in an uptrend" with "Close of 15-Minute bar is above its moving average of the last 20 bars".

If you can distill all of your rules into mechanical form, then you can have a computer do the trading for you.
 

Once a trade is opened, a "take profit" is (optionally) set at a particular price so that if the trade goes the right way, the trade will be automatically closed by your broker at a profit.

Whereas a stop loss is mandatory, take profits are optional. The reason is that there are 3 ways to exit a trade:

1. The take profit is hit, in which case the broker will close your trade automatically at the requested price.
2. Exit the trade at market - i.e. right now, at wherever the current price is. Whether you make a profit or not on this trade is determined by where the current price is in relation to the entry price.
3. As the price goes more and more in your favour, you gradually move your stop loss to follow the price (i.e. a trailing stop). The hope is that eventually your stop loss is above your entry price. Once the price turns around and the stop loss is taken out, your broker will close your trade automatically at the requested price.

The other difference between take profits and stop losses is that a take profit can be moved up or down at any time, for both long trades and short. A stop loss may never be moved to a position where you were risking more money than before.

See also::

• stop loss

Once a trade is opened, a "stop loss" is set at a particular price so that if the trade goes the wrong way, you will only lose a set and pre-determined amount of money.

ATM requires that all orders and trades have a stop loss set, whether orders are being placed manually or automatically. As such, trading systems that do not have anything for the Initial Stop Loss settings will not place any orders.

Because this is automated trading software, and because it's designed so that you can kick it off and go and do other things, it's best that some emergency checks and balances are in place. Should ATM place a trade without a stop loss, and then your Internet connection went down for whatever reason, now your entire account balance is at risk with that trade not being managed by anybody or any thing. And you don't even know what's happening because you're at the beach drinking beers.

And so a stop loss mandatory. However, there is nothing stopping you from putting that stop loss ridiculously far away from the current price - so far away that it's essentially the same as not having a stop loss. This is not recommended, but you can if you want.

See also::

• take profit