In a nondiscretionary trading system, how are entries and exits determined?

In a nondiscretionary trading system, entries and exits are determined by algorithmic rules. This means the trading decisions are based on a pre-defined set of criteria or rules that do not leave room for subjective judgment. The system operates based on specific indicators, thresholds, or patterns that are coded into the algorithm.

This approach ensures consistency in execution and allows for backtesting of strategies to evaluate their efficacy before live trading. Moreover, it removes the emotional aspect of trading, thereby reducing the risk of making impulsive decisions that diverge from the established rules. Consequently, with algorithmic rules, a trader can systematically execute trades based on objective market parameters rather than personal intuition or external influences such as social media trends.

While market intuition and analysis can lead to discretionary trading, and social media trends might influence decisions, neither of these approaches fits within the framework of a nondiscretionary trading system. Similarly, relying solely on historical price data would not capture the full range of algorithmic trading strategies that often incorporate various indicators beyond just historical prices.