Trading Philosophy

/Philosophy
Philosophy2018-09-03T20:54:33+00:00

Trading Philosophy

The Trading Plan
Long-term trading success begins with a well designed trading plan. Signal Trading Group offers its clients a disciplined approach to trading the global markets. Our trading plan provides an analytical, non-emotional approach to trading, strictly following systems designed to reduce risk while maximizing profit. Our disciplined approach does not attempt to predict market direction; we simply analyze current conditions and react as necessary to the markets.

Although it is impossible to pick the exact market top or bottom, it is possible to measure the markets’ strength to take advantage of short-term overbought/oversold environments as well as recognize intermediate and long-term market trends. Our trading systems analyze current trends and give direction as to when it is appropriate to act. By making disciplined, quantitative decisions on a daily basis, we can increase the opportunity for superior long-term risk adjusted performance.

Question: What’s the best way to profitably trade the global markets?

Answer: Follow time tested methodologies that are based on true trading logic.

This sounds easy, but for a lot of people, profitable investing over an extended time period can be very elusive. Many investors inappropriately jump from system to system searching for the perfect trading methodology. The fact is there is NO perfect system. Every system has its own strengths and weaknesses. The goal of any successful investor should be to properly evaluate a trading system to ensure that they have the confidence and capital to trade the system over time. And then quite simply FOLLOW THE SYSTEM without exception.

At Signal Trading Group our goal is to follow methodologies that:

  • Are robust and likely to trade consistently over time
  • Offer acceptable Risk/ Reward parameters
  • Allow prudent money management techniques
  • Create diversified portfolios when combined
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    The performance analysis process outlined below describes the our system analysis philosophy in greater detail.

    The Performance Analysis Process

    Step 1: Methodology Design
    We begin with an idea for a system that is based on some form of trading logic, an idea that could be simple or complex. In general terms, we want to understand exactly what steps are necessary to generate the buy and sell signal. The next step is to develop the system.

    Step 2: System Development
    Once we have conceptualized and designed our trading methodology, it is time to develop and program the system. During this stage, we actually “code” the system, step-by- step, onto a trading platform. The resulting program will instruct the system to buy, sell or exit a trade following set procedures. Programming the system allows us to thoroughly evaluate its validity and effectiveness over different time periods and across a variety of markets.

    Step 3: Robustness Analysis
    Once we have programmed our system, the next step is to determine how stable, or “robust” the system is over time and across variable settings. The robustness process begins by optimizing our system and selecting variable settings that offer stable results. While doing so, it is critical to avoid curve fitting the system to the past.

    Step 4: System Evaluation
    This next step is to thoroughly evaluate our trading system to provide answers for two primary questions:

  • Does the system offer suitable risk/reward ratios to justify its trading?
  • Does the firm have the capital base and risk profile to follow the trading signals generated by the system?
  • This evaluation step will determine if a system is worth trading. It will also direct us regarding the application of a variety of money management strategies.

    Step 5: Money Management Application
    Next we improve our trading system by applying appropriate money management strategies designed to alter the position size directed by the system. Essentially, the purpose of this step is to increase the number of contracts or shares traded during profitable periods and limit position sizes during unprofitable periods. This crucial step allows the system to take full advantage of the trading methodology.

    Step 6: Portfolio Analysis
    Once a number of trading methodologies have been designed, applied to markets, evaluated and adjusted with money management strategies, they are ready to be combined into a portfolio. We can then analyze the effect of portfolio diversification as it pertains to volatility of returns and smoothness of the equity curve.
     
    This final step combines all of the systems together into a single portfolio to ensure:

  • Diversification across markets.
  • Diversification across systems.
  • A smooth portfolio equity curve.
  • Appropriate money management strategies that apply directly to the trading profile of the individual system.
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