The approaches to automatic trading: the 4 macro categories that you absolutely need to know to be a successful trader!

A guide to the 4 macro categories of trading systems and their characteristics to create a diversified portfolio of automatic trading

As you will know from my articles that I publish when I write automatic trading systems I don’t start from the indicator as many traders do (and make mistakes) but from the characteristics of the instrument I am going to trade! How do I do it? Well if you have read some of my articles you already know how to do it!

In this article I will explain to you what and what these characteristics are. We leave immediately!

The macro categories into which trading systems can be divided are:

  1. Mean Reverting Systems
  2. Breakout systems
  3. Bias systems
  4. InterMarket Systems

There are 4 in total, these are distinct and separate macro categories but nothing prevents us from mixing them as we please and also wanting to use them together. I don’t want to talk about this at the moment but know that you can mix and exploit these categories as you see fit and therefore use different natures for the same trading system diversifying your portfolio of systems even more.


Mean Reveting systems, as the name suggests, are based on a fundamental axiom: the return to one’s mean, therefore whether the instrument is in a hyper-bought or sold situation, it will return most of the time close to its mean.

Features of Mean Reverting systems:

  • High probability of winning trades between 50% and 70%, which makes them psychologically easier to trade;
  • They are multi-market, so they do very well on markets of all sorts;
  • Enter the market with LIMIT orders;
  • Long and Short asymmetry: significantly better performance on the long side (for indices) on the short side (for European currencies);
  • Take profit improves system performance;
  • Stop loss degrades performance even if necessary;
  • Higher probability of winning trades after days of high volatility;
  • (opposite characteristics to breakout systems);
  • Content slippage;


  • Have an entry point;
  • Volatility control;
  • Input filter;
  • Go out;
  • Stops and profits;

Useful indicators: Atr, Bollinger Bands (difference between upper and lower), Adx, Donchian Channel

Underlying: Equity, Indices, Bonds, Classical currencies


Breakout systems are by definition the opposite of Mean-Reverting systems, a system with a nature of this type will exploit the explosive and nervous nature of the underlying to profit, generally you enter at the high price (long) or at the low price ( short ).


  • Risk/Reward less than 50%;
  • Volatility compression;
  • Medium-Short trend with trades no later than 4/5 days;
  • They enter the market with STOP orders;
  • Small Stop Losses (always heavy based on the underlying and monetary volatility);
  • Many outlayers (trades that exceed the 3 dev. Standard compared to the average of the trades);
  • Avg Win/Loss ratio high;
  • Time-frame for small entries e.g. 5 min and tm for 1 day filters (to enter trades better;
  • Low winning trade %;


  • Check volatility;
  • Entrance;
  • Gain Output/Loss Output;

Instruments: Commodities, Crypto, Equity (short trades)

Filters: Daily factor, Weekly factor, Adx.

Critical issues:

  • Major slippage
  • High outlayers
  • Exit (we don’t know where the trade will go)


  • Entry rule
  • Confirmation rule
  • Certain condition of volatility (in breakout it is a compression)


  • Intraday: end of session or after a few hours
  • Multiday: donchian channel, profit target, volatility stop


Bias systems are among my favorites, the bias is nothing more than a “distortion” of prices in certain moments over time. Finding these biases can sometimes be easy and sometimes difficult, it depends above all on the underlying we are going to analyze. You can find very useful information in my articles that analyze the various underlyings.


  • Market orders
  • Low and high time frames
  • Very few outlayers
  • Semi-constant earnings over the years
  • % Earnings Over 50%


  • Minor slippage
  • Average Trade lower but not below $70

Instruments: Any tool

Approaches: Volatility check, Intraday or Multiday outputs


Inter-market systems are based on a fundamental principle: they do not enter based on the conditions of the market on which we are going to place orders but rather on signals generated by another market. Naturally these 2 or more markets must have common characteristics or be correlated with each other. For example, we will not go for an Inter-market system that is based on the correlation (even if it existed) between the S&P 500 and Lean Hogs. Correlations must be justified by a Macro economic connection between two or more underlyings. An example would be Oil and Gasoline!


  • Market, limit or breakout orders
  • Low and high time frames
  • Constant earnings


  • Major/minor slippage depending on order type
  • Average trade high

Instruments: Any tool (unless it maintains the premises made before)

There are many ways to write automatic and above all robust trading systems, don’t stop on indicators but dig deeper!

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