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How to build an intra day trading system for different markets


Building an intra day trading system for trading futures, stocks, or forex is no easy task and many would say that in today’s markets it’s simply not possible.

For one thing, the markets are not at all like they used to be.

Building an intra day trading system

20 years ago, before markets became completely computerised, traders worked off the floor and markets were slower and less efficient. In those days, intra day trading systems could take advantage of those inefficiencies to find a profitable edge. It wasn’t easy but it was a lot easier than it is now.

intra day trading system ig index
SRC: IG Index

Today, markets are controlled by computers and algorithms. HFT (high frequency trading) contributes to at least 40% of market transactions in some markets and even more in some other markets. Non-HFT algorithms make up a big percentage of the rest.

And the dominant players in HFT and algorithmic trading are big hedge funds and institutions, companies like Goldman Sachs that have huge pools of wealth and resources. Competing against these financial giants for the most part is foolhardy.

Teeing off with Norman

It’s like Howard Bandy once said. Trading against Goldman Sachs is like like going for a round of golf with Greg Norman. You’re never going to win so there’s no point in even trying.

Consider also, that there are very few examples of anyone even being able to beat the market on an intra day timeframe. And even fewer who have been able to do so with a system.

If you need more evidence, read this post from Price Action Lab which provides evidence that using a short-term system in the forex market is a negative-sum game.

Still not convinced?

So it’s clear that intra day trading is not for the faint of heart and I should know as I spent almost a year trying to time the markets every day in a professional setting.

(And even for professionals, intra day trading is supremely difficult and expensive. When I worked as a day trader, we may have had direct access to the market but we also had to pay £150 a day in desk fees, which very quickly mounts up unless you are trading very large size.)

But what if you want to ignore these warnings and you’re still determined to build an intra day trading system?

I can only wish you the best of luck and suggest the following pointers that come from my own trading experience:

– Avoid forex, there appear to be more inefficiencies in liquid individual stocks and futures.

– Think outside the box. For example, look into social trading, look at the smaller markets that the banks aren’t as interested in.

– You can override the system. Longer term systems may not benefit from overriding but there are studies to suggest that humans and machines perform better when working in unison. See this post for a reason why. In fact, in the short-term, discretionary trading usually does better than system trading.

– Conquer the psychological side so as to avoid gambling and emotional stress.

– Understand how to analyse your system so you know when it’s stopped working.

Master some of those rules and you’ll have a much better chance of making from an intraday trading system.

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