# Systematic Trading
Systematic trading refers to a method of trading financial markets using pre-defined rules and algorithms to make decisions. Unlike discretionary trading, where human judgment plays a central role, systematic trading relies on computer models to identify, execute, and manage trades.
Key Features of Systematic Trading
1. Rule-Based Approach: Trades are executed according to strict criteria, such as technical indicators, price patterns, or statistical relationships.
2. Automation: Most systematic trading strategies are executed using algorithms, reducing human intervention and emotional biases.
3. Backtesting: Strategies are tested on historical data to evaluate performance, risk, and robustness before deployment.
Types of Systematic Strategies
Trend Following: Buys assets that are trending up and sells those trending down.
Mean Reversion: Bets that prices will return to their historical average.
Statistical Arbitrage: Exploits pricing inefficiencies between related instruments.
Advantages
Consistency: Removes emotional decisions and ensures consistent execution.
Speed: Can react to market conditions faster than a human trader.
Challenges:
Overfitting: A model may perform well on historical data but poorly in real time.
Technical Risks: Bugs, data errors, or infrastructure failures can cause significant losses.
Conclusion:
Systematic trading offers a disciplined and scalable approach to navigating financial markets. While it has numerous advantages, success depends on sound model design, thorough testing, and constant adaptation to changing market condition