System Trading Introduction

What is System Trading?

System trading is a data-driven, disciplined approach that uses a set of rules and a pre-defined process to make trading decisions, issue buy and sell orders, or execute a trading system.

The simplest example would be to think of an “If, then” statement. That is, if X happens then do Y. For instance,

  • if price crosses above a simple moving average
  • then buy 100 shares of stock

System traders do not deviate from their system and have no or very little manual intervention. The trading rules and long-term process should drive the trades and positions as well as account for various market conditions.

The best traders of all time including the best hedge fund of all time, Rennaissance Technologies, are famously known as system traders.

What is a Trading System?

A trading system is a set of rules that determine the buy and sell signals based on the market data. A proper trading system should also account for position sizing, risk management, and other key factors.

A trading system can incorporate price action, volume, volatility, technical analysis, fundamentals, market breadth, economic data, news events, intermarket analysis, multiple timeframe analysis, system performance, seasonal factors, and more to determine trading decisions. It is entirely up to the trader to backtest how the trading system would perform in various financial conditions.

Automated or Not?

A trading system does not need to be fully automated and can still be executed manually. This is more commonly referred to as ‘hybrid trading’ where the trader utilizes data and statistics to find trading edges but does not fully automate the trading system but rather manually executes the trades whenever an alert is received.

There are many advantages to full automation which I cover in-depth in my Algorithmic Trading Guide but here are a few quick ones

  • More time to research new ideas
  • No emotions in automated trading
  • Monitor and trade more markets
  • Trade more time zones
  • No trader fatigue or manual errors (fat fingers)

Most system traders code their strategy logic or trading systems so that execution happens automatically. If you cannot code or program, keep reading to find out how you can still create automated trading strategies with no coding. Jump Ahead

System Trading vs. Discretionary Trading

Discretionary trading relies on intuition, gut-feel, in-the-moment decision making, and unreliable execution. System trading relies on tested data and statistics paired with reliable execution. After spending a decade-plus in the professional trading world, I am a bit biased. However, listen to Jim Simons – founder of Renaissance Technologies – talk about the importance of treating trading like a business and the necessity of having a trading system. Watch from 36:48 to 38:02.



“That religious sticking to the model is the only way you can run such a business. Because you cannot simulate that guy that walked in and said ‘Hey, Google is too high. Let’s sell it’. How can you simulate that? You don’t know what might have happened.”

Discretionary Trading Pitfalls

What you see is not the same

Humans are prone to seeing delusions and recognizing patterns where there are not any. It is part of our survival mechanism and the market preys on this. For instance, do you see a duck or a rabbit?

Duck or Rabbit Illusion - A case against discretionary trading

Half the traders see one thing and half the traders see the other. This is no way to build a reliable business or risk your hard-earned capital.

Two or more patterns on the same chart

Driving the previous point home in another way. Notice this chart below covers the same date range but can easily show multiple different technical analysis chart patterns depending on who you give the crayon to. Double bottom, channel breakout, bear flag, go-broke special.

Technical Analysis can be misleading - Build Alpha

Linear vs Log Charts

Do you use linear scale or log scale charts? How we even set up our trading charts will determine what patterns and peaks and valleys line up. This presents a whole new can of worms that make it problematic to build a business off of discretionary methods lacking testable insights.

Linear vs Logarithmic Trading Charts

Trading “Truths”

The big players need liquidity to exit their positions and in order to do so they need a lot of retail traders to take the other side of their trade. This has created astute institutional and professional traders to abuse old trading axioms and sayings (that may have used to work) to their advantage.

The market marketing machine teaches new traders simple sayings and patterns with obvious names like bearish engulfing candle or bullish flag pattern to initiate a new flock of fish to take the opposite side of their trades.

I wrote about three of these common trading “truths” in this blog debunking them and showing the data of what actually happens. All the more reason to test everything and build trading systems rooted in data.


What is Mechanical Trading?

Mechanical trading is the process of having pre-determined rules generate trade entry and exit signals. Mechanical trading is simply another way of describing system trading or automated trading. System trading or Mechanical Trading can be used for day trading, trend following, mean reversion, arbitrage or any other type of trading idea.

Mechanical Trading Strategies

Turtle Trading

The original story covers 23 novice traders hired to execute a trading system as part of an experiment set up by two professional traders. The goal was to see if regular people could achieve success following a trading system.

The story is fascinating and the strategy itself is disclosed in the famous books The Complete Turtle Trader and Way of the Turtle. The strategy’s performance has since waned but can be thought of a simple breakout strategy executed across commodities with some volatility-based sizing.

Ichimoku Trading Strategy

The Ichimoku Cloud technical indicator uses a series of moving averages with different lookbacks and offsets to create a “price cloud” (pictured below). I placed a purple box to show most of the price collapse happened during the “bullish cloud phase”.

Ichimoku Trading Strategy Cloud Indicator

This indicator is often popularized because the creators claim that it can predict future price movements. However, this may be another trading “truth”, as most testing does not show a positive edge or e-ratio.

Forex Robot Trading

This is an alternative word for automated trading systems or algorithmic trading in the forex industry. I am not sure why the forex industry has taken to the terminology robot but one can consider these all the same.

Trading systems can be applied to any timeframe, bar type, or asset class including forex and cryptocurrencies. I have given away a handful of successful “forex trading robots” including this one below. Although, you will hopefully never hear me use this phrase again.

For those interested in Forex Algo Trading 

What is an alternative trading system?

An alternative trading system (ATS) is an electronic trading system that matches orders for buyers and sellers of securities and are often SEC-regulated but not national securities exchanges. Alternative trading systems are more considered trading venues that are more loosely regulated than exchanges, not to be confused with a rules-based trading system for executing buy and sell orders as we have been discussing in this post. A few examples of alternative trading systems would be

  • Crossing networks
  • Dark Pools
  • Electronic Communication Networks (ECNs)

Can you have an automated trading system with no code?

Build Alpha Trading System Software

Yes, Build Alpha is a no code strategy generator that I have been building for the past half-decade or so. This software allows traders to select entries, exits, risk management, and more from a point-and-click interface and the genetic algorithm (strategy engine) will find the best strategies for you.

After finding strategies that meet your desired risk controls and robustness tests you can monitor the strategy live to receive real-time alerts and position changes or hit a button to generate fully automated code for a variety of popular brokerage platforms such as TradeStation, NinjaTrader8, MetaTrader4, MetaTrader5, Python, and more.

Watch this demo video to see how fast I can build

  • A MACD strategy
  • A RSI-2 strategy
  • Thousands of strategies better than the two above


Please note this video is a few years old. Check out the Build Alpha Demo page to see new versions of the software.


System trading is a data-driven approach that requires a set of rules that determine entry, exit and sizing of a trading strategy. A trading system can be executed manually or automatically but should involve very little or no human intervention. Traders struggling with emotions, discipline, or finding quantifiable edges should investigate system trading. Build Alpha enables traders with no coding experience to build, test, and automate their trading systems. Shoot me an email anytime to learn more.


David Bergstrom – the guy behind Build Alpha. I have spent a decade-plus in the professional trading world working as a market maker and quantitative strategy developer at a high frequency trading firm with a Chicago Mercantile Exchange (CME) seat, consulting for Hedge Funds, Commodity Trading Advisors (CTAs), Family Offices and Registered Investment Advisors (RIAs). I am a self-taught programmer utilizing C++, C# and python with a statistics background specializing in data science, machine learning and trading strategy development. I have been featured on,,, Quantocracy,,, Benzinga, TradeStation, NinjaTrader and more. Most of my experience has led me to a series of repeatable processes to find, create, test and implement algorithmic trading ideas in a robust manner. Build Alpha is the culmination of this process from start to finish. Please reach out to me directly at any time.

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