|Trading systems||Equality markets|
The equity market is probably the most common market to trade in, especially among novices. In this arena, big players such as Warren Buffett and Merrill
Lynch dominate, and traditional value and growth investing strategies are by far the most common. Nevertheless, many institutions have invested significantly in the design, development and implementation of trading systems. Individual investors are joining this trend, though slowly.
Here are some key factors to keep in mind when using trading systems in equity markets:
• The large amount of equities available allows traders to test systems on many different types of equities - everything from extremely volatile over-
the-counter (OTC) stocks to non-volatile blue chips.
• The effectiveness of trading systems can be limited by the low liquidity of some equities, especially OTC and pink sheet issues.
• Commissions can eat into profits generated by successful trades, and can increase losses. OTC and pink sheet equities often incur additional commission fees.
• The main trading systems used are those that look for value - that is, systems that use different parameters to determine whether a security is undervalued compared to its past performance, its peers, or the market in general.
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