What is a trading system?

A trading system is a method of investing in which the trader follows precisely defined rules. Often, trading systems follow buy or sell instructions generated by sophisticated computer programs. Other times, trading systems are managed by human beings who follow clearly-defined mathematical rules. The point of a trading system is to remove emotion from investing.

Advantages of trading systems

• Eliminate emotion. Traders who act on emotion -- whether fear or greed -- often make mistakes that cost money.
• Try to make statistical probability work in your favor. There is no such thing as a "holy grail" trading system that never loses money. Nor does past performance indicate future results. But people who use trading systems believe that a system's statistical profile tends to stay the same over time. They believe, for example, that a system that has selected winning trades 53% of the time over the past six months is more likely to pick a winning trade than a system which picked 38% winning trades.
• Build a system portfolio. Most investors understand the advantage of trading a portfolio of stocks or futures. A diversified portfolio is less likely to suffer sharp reversals in fortune, and is less likely to be buffeted by an "outlier event" affecting a single stock or future. Mathematically speaking, a portfolio is more likely to rest on the efficient risk/return frontier than a single holding. Similarly, a portfolio of trading systems is more likely to achieve smooth results, at less risk, than a single trading system. IBDirect makes it simple to test and trade a portfolio of trading systems simultaneously.

A trading system auditor

Until IBDirect, there was no central authority that monitored, ranked, and audited trading systems. Before IBDirect, when an investor wanted to know how a trading system had performed, he was forced to trust the results claimed by a trading system vendor. Now, thanks to IBDirect, no "trust" of system developers is required. When a trading system says, "Buy" or "Sell" IBDirect tracks how that trading advice actually performs in real life. We then present results for public inspection.

Some trading systems stink

Not all of the trading systems here at IBDirect are good. Some are bad. But that is the point of the site: to allow anyone who thinks they have created a useful trading system to have their system audited and ranked by IBDirect. Because IBDirect is open to mathematicians, software programmers, and traders around the world, many of the systems here are not good.

Fortunately, we provide investors with a set of tools which make it easy to find top-performing systems in our database. Once you find a system you like, you can "subscribe" to it, and then, when you feel comfortable with it, you can "autotrade" it -- that is, have the trades placed automatically in your brokerage account.