Stocks & Commodities V. 30:9 (32-34): Building Systems For Forex by Joseph James Gelet

Building Systems For Forex by Joseph James Gelet

When developing designs for forex trading systems, you need to give a lot of thought to the logic involved. Here is a look at the components necessary for a good forex trading system.

AS system developers know, the process of building automated trading systems is complex and filled with biases. A machine is not necessarily a physical mechanical machine. It can be a virtual machine, electrical machine, or in our case, software-based logical trading machine. System trading is the process of building and implementation of algorithm-based systems that execute trades automatically. While many associate this with machine intelligence, only the execution is fully automated.

Many trading systems rely on simple rules and do not fully exploit the possibilities of machine intelligence, considering the recent rapid increase in computing power. By refining the process of building the logic behind trading systems, we can build intelligent systems that not only exploit processing power, but rely less on the skill of developers and traders. Some flaws in building any system are:

• Past performance will not necessarily indicate future performance

• There are so many choices that it becomes difficult to approach devising the logic of a winning system.

LOGIC AS A PARAMETER

Common parameters in automated trading systems may include values such as lot size, time, and indicator levels (such as a Bollinger Band standard deviation). When optimizing systems, traders will backtest, usually resulting in overoptimization, and sometimes use techniques for real-time optimization. Other software includes walk-forward optimization, which is questionably accurate to determine the best parameters.