| There are many stock trading systems available | | | | Once the fast falls below the slow a sell signal is |
| online. Nearly all the systems fit into two broad types. | | | | taken. The average win is much less in a mean |
| The systems are trend following or mean reverting | | | | reverting system. |
| stock trading systems. Momentum trading is a form | | | | Trend followers are big believers in momentum. |
| of trend following. Mean reverting is the opposite of | | | | Momentum traders often have low win percentages |
| trend following and profits from price reversals. | | | | with larger periods of drawdowns. It may take a few |
| Mean reverting systems profit from price failures and | | | | losers before a trend following system will hit a big |
| trend reversals. The signals are usually given at price | | | | winner. A winning percentage under 40% is not |
| extremes. A relative strength system is a very | | | | uncommon. But, the winners can be huge. Trend |
| common mean reverting stock trading system. The | | | | followers only need a few big winners to pay for all |
| sell signal is triggered by a move of the relative | | | | their small losers. Breakout highs and breakout lows |
| strength index above 70. Sell signals are given by the | | | | are usually a form of trend following. It is not |
| index falling below 30 on the indicator. The system | | | | uncommon for trend followers to add to winners. |
| profits from a reversion to the mean price over the | | | | This is often called pyramiding. |
| past time frame. A large protracted move will be a | | | | Trend following and mean reversion are the two |
| big loser for mean reverting systems. Stochastics are | | | | building blocks of most systems. If you can |
| another very popular mean reverting trading system. | | | | incorporate a mix then it will increase the robustness |
| Stochastics have two averages. The fast and slow. | | | | of your system. |