Introduction to Systematic Trading


Systematic Trading is trading with well defined rules without any space for discretion. The two broad types of strategies relevant to retail traders are

  • Trend-Following
  • Mean-Reversion

There are other types of strategies such as

  • Arbitrage
  • Market Making
  • Liquidity Rebate Trading
  • Predatory Trading
  • Behavioral Trading
  • Event Trading

These strategies are beyond the scope of what retail traders could execute. Infrastructure or commissions limit retailers from getting into these strategies.The Frequency of trading strategies also plays an important role.

There are three major types of trading based on frequency:

  • Low Frequency
  • High Frequency
  • Ultra High Frequency

Low frequency: It is generally called swing trading. You can consider any strategy that doesn’t operate intraday as Low Frequency.

High Frequency: All intraday strategies are High Frequency strategies.

Ultra-High Frequency: Strategies which holds trades for seconds to milliseconds come under this classification.

Going from zero to live deployment in trading consists of six steps.

  • Strategy Identification
  • Strategy Backtesting
  • Building an Execution System
  • System Risk Management
  • Live Testing
  • Live Trading

In the further posts of this series, we will look at these six steps in detail.