Systematic Advantage #1: Reduces, if not eliminates, trading emotion
Systematic trading seeks to reduce or even eliminate trading emotion. It relies on pre-defined rules and strictly enforced algorithms to buy, sell and manage positions without the bias of a human trader’s emotions. Utilizing this methodology allows traders to take advantage of market movements more consistently, as they are not influenced by their own emotions when making decisions. Systematic trading also helps reduce losses, as a well-defined system can help traders quickly identify and exit losing positions.
Another benefit of systematic trading is that it allows investors to capture opportunities that human traders may overlook. For example, human traders often experience cognitive biases which prevent them from adequately evaluating information or making rational decisions. The pre-defined rules of systematic trading can eliminate these biases, allowing investors to take advantage of profitable opportunities in the market.
Emotions will let you down at critical times when trading, while a well-designed system will run with the discipline and consistency needed to make money in financial markets. Systematic trading offers the ability to reduce risk and increase returns by eliminating emotion from the trading equation.
