If you must buy a trading system...

[new_trader]

The problem is this: Driving is not a 'secret' art. It is in everyone’s best interest to drive safely. The rules are clearly laid out for everyone to follow and police strictly enforce them. In other words, driving is mostly a cooperative activity. I say mostly because there are plenty or ar$eholes on the road. This is in complete contrast to trading which is not a cooperative activity, it is mostly (Hedge funds are a group of investors cooperating) a competitive activity. It is a relentless war for profits.

The paradox is this: In order to program an automated trading system you need to have a complete understanding of how to trade in the first place. But, if you have a complete understanding of how to trade you will know that trading cannot be automated! Now, before you jump down my throat, let me say that knowing what must be done is no guarantee of success either. This is where mastering yourself comes into the equation.

 

[Mathemagician]

The paradox is this: In order to program an automated trading system you need to have a complete understanding of how to trade in the first place. But, if you have a complete understanding of how to trade you will know that trading cannot be automated!

Actually, you only need to have one halfway decent idea. Lots of very simple and quite easily automated ideas are halfway decent. Combine several halfway decent ideas and all of a sudden you've got yourself a pretty good trading program.

Don't believe me? Here's an example of a simple idea that is halfway decent:

Take a simple 50 day moving average and a 200 day moving average. Go long when the 50 is over the 200. Go short when the 50 is under the 200. That's it. Apply this idea to a broad selection of global futures markets, deduct $115/round turn for commissions and slippage, and apply halfway decent portfolio construction and position sizing. The result is attached. Obviously it's not a holy grail or anything but it's a damn sight better than most people can do and it does prove that a simple, easily programmable idea can produce results over time.

jj

 

[Trader333]

One thing that is certainly happening on T2W and that is there is excellent teaching and mentoring happening on Technical Trader. This is where Grey1 is more than happy to help others (including live sessions) where he explains in complete detail trades taken and the exact reasons for taking them. Recently there was around 30 of us that attended an 8 hour live trading web seminar and everyone found it a great education.


Paul

 

[nine]

I've cleaned up a number of posts in an argument not related to the original topic.

Please stay on topic: "If you must buy a trading system..."

There is nothing wrong with buying a system, as long you know what you are getting into and what to expect. We are talking about end of day systems only.

Checklist:
1. Is the system fully disclosed or a black box? Don't bother if it's a black box because you'll ditch it as soon as you hit a few losses.

2. Is it completely mechanical or does the seller claim to use his/her 'feel'? Don't bother if it's the latter. Assuming the seller has indeed developed a 'feel' of the market and is not lying, what makes you think you can develop that as well?

3. Ask the seller if he/she trades it everyday. Don't bother if they don't. If they trade it, for how long have they been trading it?

4. Ask where the seller's main income comes from: trading, selling courses, or some other source?

5. Ask if the seller will show you an audited account statement (hiding confidential information like their broker account number etc) over a period of 6 months, taken within the last year. Getting an account statement doesn't imply you are on to a winner, but it's better than none. This single question will weed out most of the scammers (except the serious crooks who happily falsify account statements).

6. If you have met the seller on a forum, ask for the names of a few other customers on the same forum, so you can contact them. Check when these members have joined the forum.

7. Find out what market it trades, using what vehicle, how often, which side (long, short, both), how much capital is needed to operate the system, how much time it needs every day, and (very important), if this is a one-sided system, i.e. trades only on the long or the short side then see what sort of market the system has had recently. In other words, long-only systems pop out of every corner in a roaring bull market, only never to be heard of again in a bear market. Don't get caught in th hype.

8. Get all the vital statistics, from real trades, not from simulated back tested results, both historical and for each year:
Number of winners v. losers
Average profit to average loss
Net ROE for each year
Compounded cumulative ROE since the beginning
Maximum historical drawdown
Maximum drawdown each year
Number of winning months v. losing months each year

9. Get the equity curve of the system (of real trades, not of simulated back tests).

10. Find out the conditions of refund. Most mechanical systems will have a 6-months or 1-year no-profit guarantee, i.e. if you follow the rules, log all your trades for that period and can't show a profit then you get your money back. This is why it's important not to buy a system based on the seller's 'feel'. You'll never get your money back.

If at any point of this questioning the seller gets a bit shirty and starts talking about 'trust' or 'honesty', simply walk away. If they cannot provide answers to straight question, they don't deserve your cash. There are plenty of fish in the pond.

Once you have done all the due diligence and are happy that you can handle the drawdown and the losses, go for it.

Once you start paper trading the system, chances are the system will go straight into a drawdown, completely against what the seller has told you so far. One thing you should never do is to give up at this stage and try something else. There are two reasons for this:
First, you never get your money back if you give up.
Second, the extended periods of drawdown are extremely useful to build you as a trader. What makes you think you'll not have a drawdown when you finally trade profitably? This tough period prepares you for that, so thank your stars that you are getting that opportunity before actually burning any real money. In addition, these losing periods tells you a lot about the system you are testing, why it is not performing, what is missing etc. All this information is useful. After all, it's not stopping you from trying to find your own system and paper trade it in parallel.

 

[oilfxpro]

Actually, you only need to have one halfway decent idea. Lots of very simple and quite easily automated ideas are halfway decent. Combine several halfway decent ideas and all of a sudden you've got yourself a pretty good trading program.

Don't believe me? Here's an example of a simple idea that is halfway decent:

Take a simple 50 day moving average and a 200 day moving average. Go long when the 50 is over the 200. Go short when the 50 is under the 200. That's it. Apply this idea to a broad selection of global futures markets, deduct $115/round turn for commissions and slippage, and apply halfway decent portfolio construction and position sizing. The result is attached. Obviously it's not a holy grail or anything but it's a damn sight better than most people can do and it does prove that a simple, easily programmable idea can produce results over time.

jj

What if markets change?And price bounces between 40 and 70 for a good 6 months

OILFXPRO

 

[oilfxpro]

Hi

We are a trading community of traders wanting to help each other in trading .

The best way to deal with unscrupulous systems sellers etc is to rate their their threads 1 star ,and to go on their threads and question them tactfully and diplomatically ...without accusing them DIRECTLY or libel

OILFXPRO

 

[oildaytrader]

there is nothing wrong with buying a system, as long you know what you are getting into and what to expect. We are talking about end of day systems only.

Checklist:
1. Is the system fully disclosed or a black box? Don't bother if it's a black box because you'll ditch it as soon as you hit a few losses.

2. Is it completely mechanical or does the seller claim to use his/her 'feel'? Don't bother if it's the latter. Assuming the seller has indeed developed a 'feel' of the market and is not lying, what makes you think you can develop that as well?

3. Ask the seller if he/she trades it everyday. Don't bother if they don't. If they trade it, for how long have they been trading it?

4. Ask where the seller's main income comes from: Trading, selling courses, or some other source?

5. Ask if the seller will show you an audited account statement (hiding confidential information like their broker account number etc) over a period of 6 months, taken within the last year. Getting an account statement doesn't imply you are on to a winner, but it's better than none. This single question will weed out most of the scammers (except the serious crooks who happily falsify account statements).

6. If you have met the seller on a forum, ask for the names of a few other customers on the same forum, so you can contact them. Check when these members have joined the forum.

7. Find out what market it trades, using what vehicle, how often, which side (long, short, both), how much capital is needed to operate the system, how much time it needs every day, and (very important), if this is a one-sided system, i.e. Trades only on the long or the short side then see what sort of market the system has had recently. In other words, long-only systems pop out of every corner in a roaring bull market, only never to be heard of again in a bear market. Don't get caught in th hype.

8. Get all the vital statistics, from real trades, not from simulated back tested results, both historical and for each year:
Number of winners v. Losers
average profit to average loss
net roe for each year
compounded cumulative roe since the beginning
maximum historical drawdown
maximum drawdown each year
number of winning months v. Losing months each year

9. Get the equity curve of the system (of real trades, not of simulated back tests).

10. Find out the conditions of refund. Most mechanical systems will have a 6-months or 1-year no-profit guarantee, i.e. If you follow the rules, log all your trades for that period and can't show a profit then you get your money back. This is why it's important not to buy a system based on the seller's 'feel'. You'll never get your money back.

If at any point of this questioning the seller gets a bit shirty and starts talking about 'trust' or 'honesty', simply walk away. If they cannot provide answers to straight question, they don't deserve your cash. There are plenty of fish in the pond.

Once you have done all the due diligence and are happy that you can handle the drawdown and the losses, go for it.

Once you start paper trading the system, chances are the system will go straight into a drawdown, completely against what the seller has told you so far. One thing you should never do is to give up at this stage and try something else. There are two reasons for this:
First, you never get your money back if you give up.
Second, the extended periods of drawdown are extremely useful to build you as a trader. What makes you think you'll not have a drawdown when you finally trade profitably? This tough period prepares you for that, so thank your stars that you are getting that opportunity before actually burning any real money. In addition, these losing periods tells you a lot about the system you are testing, why it is not performing, what is missing etc. All this information is useful. After all, it's not stopping you from trying to find your own system and paper trade it in parallel.

great post and good advice

All systems and methods eventually fail.

Here is a breakout method based on price which failed after many successful years.

http://www.trade2win.com/boards/commercial-systems/12695-acd-methodology-5.html#post1018670

The oil market is a good example.The U S was flooded with oil when this method worked,as
the supply demand equation changed, this method based on price started failing.It no longer works.

 

[stephen2003]

great post and good advice

All systems and methods eventually fail.

Here is a breakout method based on price which failed after many successful years.

http://www.trade2win.com/boards/commercial-systems/12695-acd-methodology-5.html#post1018670

The oil market is a good example.The U S was flooded with oil when this method worked,as
the supply demand equation changed, this method based on price started failing.It no longer works.

GENERAL ADVICE PLEASE
every wednesday afternoon how come the oil price has always moved before the inventory comes out?
is this legal?
do people have inside information?
or is there a website to check the data out?.

Stephen.

 

[thos]

The problem is this: Driving is not a 'secret' art.<snip> driving is mostly a cooperative activity.

If we extend the analogy to racing

If I wanted to race I could try to just do it, but I would be better going to a racing school. The instructors would not be Formula I champions - they may have won a few races in their time but they would not be very good. Nevertheless I should be able to finish further up than If I just drove or went on forums. I don't need to win every race, just come in the top half.

I could buy a state of the art computer for my car. That would tell me when to change gear, what speed to go and where to steer. Would that help me finish further up? It might. I may finish further up more often. On the other hand I wouldn't know if the program could cope with snow or crosswinds and I wouldn't know until I had crashed.


In summary - a bought system may perhaps work, but even if it was a good one I wouldn't know its limitations until too late.

Training should be a better bet. It would not make one top class, but if the provider is reputable and tolerably good it should help avoid costly errors and so pay for itself. The problem here is that most of the 'trainers' seem to be pushing their own black box system.