What is the difference between a Trading “System” as opposed to a Trading “Method” or “Technique”?
What distinguishes a “system” from a method or technique is that a trading system utilizes, in a consistent manner, objective criteria based on historical and quantifiable data to analyze trading conditions, and to enter and exit positions. This is particularly true with automated or mechanical systems.
A trading system uses “fixed” entry and exit parameters or set of rules to execute trades. The term “fixed” is important, particularly in the case of automated systems. In contrast, a trading technique or method may also have rules to analyze and execute trades, but those rules can be implemented with a degree of flexibility or interpretation. If a trading system, on the other hand, includes alternative rules or variations, those rules or variations are determined beforehand so that there are no modifications to the rules once the system is in operation.
If a system developer constantly modifies the system, then the stability of the system, even though the changes are for the better, is in question. Why? Because once the system has been modified, then all of the historical performance data upon which the system is based is no longer applicable; change the rules of the system and you change its historical performance. In other words, you now have a trading system that can significantly differ from the original one.