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Systematic Trading: Benefits and Risks

Getting Starting With Systematic Trading

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Tools for Strategy Building

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Michael R. Bryant, Ph.D. Tools for Strategy Building

 by Michael R. Bryant




Many traders have adopted systematic trading methods in recent years. Trading systems help remove the emotion from trading and enable trading strategies to be automated so that the buy and sell signals can be executed automatically without manual intervention. This article discusses the types of software tools that are available to help develop profitable trading strategies.


Trading platforms. This is the most basic tool for systematic trading. Trading platforms can be provided by a brokerage, often as an enticement to use the brokerís services, or by a third-party. The latter usually connect to a variety of data sources and brokerages. The key features of trading platforms are order entry and charting. In recent years, trading platforms have expanded to include capabilities more aligned with systematic traders, such as scripting languages and strategy back-testing. Even in the absence of these more advanced features, the charting capabilities of most trading platforms can be helpful in developing ideas for trading systems. Some of the more popular trading platforms for systematic trading include TradeStation, Ninja Trader, Trade Navigator, eSignal, MultiCharts, AmiBroker, and MetaTrader (forex).

Scripting languages. Trading systems are essentially software programs and, as such, are based on some sort of programming or scripting language. Languages tailored to market trading are typically available in trading platforms, although they can be part of a separate, more specialized application. The most popular scripting languages are general purpose trading system languages that allow editing, code testing, and some historical and real-time simulation, depending on the tool. Some of the more widely used scripting languages are EasyLanguage (TradeStation and MultiCharts platforms), NinjaScript (Ninja Trader), TradeSense (Trade Navigator), EFS (eSignal), AFL (AmiBroker), and MQL (MetaTrader). The Tradersí Tips section in Stocks & Commodities magazine contains code samples for many of the more popular scripting languages.

Portfolio analysis and simulation tools. Some platforms include portfolio analysis and simulation capabilities; however, third-party tools often go beyond the features available in most platforms. Tools in this category enable advanced analyses, including position sizing, portfolio optimization, Monte Carlo analysis, and robustness testing. Software programs of this type include TradeStation, which recently purchased analysis software from The Grail and from RINA Systems, ProSizer (Excel spreadsheet-based tool), TradeSim (for MetaStock), and Market System Analyzer.

Code generation tools. Until recently, developing a trading system required writing code. With the advent of code generation tools, the software can write the code for you. Code generation tools combine strategy elements, such as common trading indicators and price patterns, in different ways to find the strategy logic that works best. Some tools output code for third-party platforms, such as TradeStation, while others use proprietary schemes that only run on their platforms. Examples of code generation tools include Trading System Lab, StrataSearch, and Adaptrade Builder.

The specific applications mentioned above are generally geared towards individual and so-called semi-professional traders. While many professional traders also use these tools, software tools specifically designed for professional and/or academic use in the finance area include MatLab, Mathmatica, and the S and R statistical analysis languages.


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