What is a Trading Model?
A trading model is a computer generated calculating tool for forecasting stock values and trends. Based on individual’s needs a customized model can be built.
These models are necessary as tracking the factors that affect your stock trading have to take into account multiple trends.
This is time consuming and tiresome and possibilities of error is higher. Intraday trading has become much faster as share trading in the stock market is carried out by online share trading. Hence the dependence on trading models to help track the trends has substantially increased.
Benefits of trading model:
1. Each and every model of trading style is proven records and it’s a history of theory. This in fact improves trading skill and avoids human errors and intervention of emotions.
2. Trading styles has the advantage of automation. This helps in better understanding will helps in eliminating the manual monitoring systems which may cause errors. Also it helps by reducing the anxiety of the traders and be watchful by tracking each and every stock.
3. It guides in the back testing process for all past trading signals, thereby helping us to calculate profit and loss with brokerage.
1.Build up a theory
Recognize the aspect affecting the stock and the feature with which they are reliant. Correlation and reliance are the source of your model.
2.Assemble your database
This statistics compilation should be wide-ranging and from trustworthy sources. Validate that your information is right as your model is reliant totally on this data.
3.Create Clarification and compute
Confirm your trading rules by making observations and doing the calculations.
Check your terms and supposing situations. Taking into account many scenarios helps your model in succeeding.
Validate your model with historical data first and then test it with the current market or real world.
6.Avoid a failing model
When a particular model does not suit you and fetch money, do not hesitate to switchover a new model. Your model has to be perfect if you are going to depend on it for your investments and money. Even while travelling, alerts can be set on your phone so that you remain aware of what happens in the market always although you don’t have access to computer.
Major losses can be avoided with the help of good trading models, moreover good profits can be expected as they identify and reveal mistakes that humans can miss out. Although there are standardized models, they may not be perfect for your financial portfolio.