BSAR - The Conceptual Framework - Trading Systems

1. So what is BSAR, and how could it help a trader?
• BSAR, (Biased Stop and Reverse) is a simple Mathematical Trading System designed to help traders make better profits, consistently.
• It could be used by anyone - beginners, experts etc., (individuals could use it for free)
• It could be used to trade anything, that is traded for money
2. What is a trading system, and why does anyone ever need it?
• A trading system is simply a group of specific rules, or parameters, that determine entry and exit points for a given asset.
• These rules are defined logically, using Mathematical Equations
• These rules are tested on historical data and the results are statistically validated for consistency and effectiveness
• So trading systems take archaic emotions out of trading
• They help a trader stay calm and composed, as he sees order in the chaos
• Trading Systems save time and money as trading decisions are automated.
3. What are the disadvantages of trading systems?
• Masochism is defined as, "gratification gained from pain, deprivation, degradation, etc., inflicted or imposed on oneself, either as a result of one's own actions or the actions of others, esp. the tendency to seek this form of gratification." Masochism which is a manifestation of mortido, is present in all human beings, but the degree of need varies. Losing in gambling is a masochistic behavior, and most losers unconsciously enjoy it. Trading Systems take these kinds of masochistic pleasures out of trading, as trading ceases to be gambling anymore.
• Trading Systems, in general, are complex and difficult to develop
• Most trading systems defined in the textbooks and manuals ignore the transaction costs like brokerage taxation and opportunity costs
• The development of a trading system is usually a time consuming and a daunting task, and entails lot of expenditure in terms of payment to trading systems developers, programmers, software and data subscription fees etc
4. What are different types of trading systems, and what type is BSAR?
• Trading Systems could be broadly classified into three categories
• Advisory Trading Systems - Where a financial adviser or a stock broker or someone who could be responsible for executing the trades for large Financial Institutions advises Buy/Sell of particular assets.
• Technical Trading Systems - The systems based on Mathematical or Statistical tools, and they could be further subdivided into following categories:
• TREND FOLLOWING SYSTEMS:
• Moving average based trading systems
• Trigonometric/Geometric/Quadratic Equations based trading systems
• Breakout Systems
• Indicators Based Trading Systems
• COUNTER-TREND TRADING SYSTEMS
• Volatility Based Systems
• Market Breadth Based Systems
• Oscillators Based Trading Systems
• Price Overlays Based Systems, including Bands
• Fundamental Trading Systems - These systems chiefly rely on Financial reports and Ratios, Economic Data, Industry Statistics etc to find the intrinsic value of the asset and the projected value of the asset in the long term which is derived from the topline/bottomline growth statistics and future demand outlook
• So BSAR is Moving Average Based Trend Following Technical Trading System
5. What is the differnce between an indicator and oscillator?
• Simply stated (in terms of technical analysis), an indicator is a mathematical formula that is applied to the price or volume of a security with the intention of predicting future trend. Common examples of technical indicators are the MACD, OBV etc.,
• Oscillator is a mathematical formula that is constrained between minimum and maximum values. Oscillators are designed to help you identify overbought or oversold conditions. When the oscillator approches the upper (maximum) value, the security is said to be overbought, and conversely, when the oscillator approaches the lower (minimum) value, the secuirty is said to be oversold. Common examples of Oscillators are RSI, Stochastics & W%R
6. Which trading systems are better the trend-following or the counter-trend?
• Both trading systems have their advantages and disadvantages. However the trend following systems are best suited for aiding the decision for holding onto the open positions, while the counter-trend systems are best suited for market timing. A Complete Trading System which makes use of counter trading system for Entry/Exit signals and trend following system for holding the open positions would be very robust.
7. Now the Problem with BSAR that it doesn't give us precise and clear Entry Exit signals, is due to the fact that it is a trend following system, and it needs to be used in conjuction with some Counter-Trend System.