Hello, A few a days ago a trading buddy emailed stating he found a trading system (indicators or software that tells the trader when to buy and stop loss based on some rules, etc.). System only trades a few future markets. The buddy says he likes and he is doing well this past month, and recommends I try it. He pay a lot of money for it. I am backtesting via sim my own trading plan and rules, and really don’t want to go the route of purchasing a trading system due to some of the bad advice I read on forums. Questions I have for experience traders with experience with buying trading systems in past: 1. I never really understood this logical, hopefully you can help. If someone has a trading system that works for them, why would they sell it to the world? If it so good and has good ROI, I don’t understand why anyone would sell it? 2. What the chances of the trading system eventually becoming not useable and doesn’t make money anymore. 3. What questions would you ask if thinking of buying such a product? Your thoughts on buying trading indicators or systems from developers or trader gurus selling a product.
You know Profit (x) = Gains - Costs (y) That vendor will sell his product at a profit. So if you buy it 100 $ then x = 100 - y Where Gains > y otherwise no profit. Part of the Costs are Opportunity Costs. Which could be the degradation of his signals. Anyway. It's really a shortcut but ... Don't expect to earn more than what you spend. In other words, it's not good business to buy junk products. Better to steal it. Learn hacking. Check big name's bloomberg terminal.
It does not make sense. If I have a good signal system that works then long term all I have to do is put together some money and trade it and over the years my account will grow and allow me to leverage bigger returns and make way more money than selling it. people sell it because they know it really is not a sound system that will work over time so better to cash in up front. Especially if I have a system that I can charge $10k for and sell to 100 people...
Problem with many indicators or systems, since one buying it is often not educate well enough to trade in first place, they will be unaware when volatility changes, or chart patterns might not be programmed in to stop signals from happening or fat finger hard moves, will those systems continue to take trades or shut signals down. All systems have drawdown periods, and you ask what are drawdowns during chop, and change of trends. Some people simply don't have ability to trade as not able to risk but make good developers, some have spent years to get profitable on paper and have no start up monies, but most sell systems cause systems generally don't last long, extra way to make easy money as many don't want to take the years to get good. I have bought systems through the years, but I am educated in trading and trade them different ways, I wait for huge drawdowns before I start to trade them and they are long term systems. Dealing with the public is a pain in the arse, at least to me, a good trader can make whatever all the bs and time that goes into trading software on one trade. There are some who say they want to give back. But learning to play the game and learn charting is like a Corn Maze, figure out where it going like a chart, better you can read where you going, better you become, after you get good at chart reading , then you can add indicators to help for quickness.
My sister never reads charts and she steadfastly refuses to learn. She had made a lot of money between 2003 and 2007 by consulting a Chinese fortune teller (more precisely an astrologist and Feng Shui master). Every time my sister needed to make a significant decision with respect to the disposition or allocation of her capital, she went to see this master. She lost all her gains plus more in 2008. She has been out of the equity speculation game ever since. Her new play ground had relocated to the real estate market in Australia. Her new indicators are provided by another Feng Shui master nowadays. As of today, her net worth has expanded by 400% of her 2007 level. Since I lack her faith and guts, I am still making peanuts fooling around in the futures and options markets.
1. They selling it because it works only some time. When market conditions are changed the system starts to fail it starts to generate signals either too late or too early. Let's say I have invited a system - you flip a coin and the coin tells you whether buy or to sell. Let's say I start to sell this system. If I ask big $$ then, even when 5% of my clients are happy for at least a month I will get nice $$$. Strictly business and no magic. 2. You have to readjust the system. You have to go in a deep analysis, find out what changed, price movements become more or less volatile, average trading volume became higher or lover, check general market trend whether it changed, check the industry trend, check your stocks fundamentals to see if there any changes and etc. Then you have to re-adjust your system and your indicators to a new market conditions. If the system generates signals every day you may be in need to adjust it every week... 3. Ask the refund policy!!!
Best to develop your own so you know it's evolution and understand how to adjust when necessary. There is no quick path.
If somebody wants to sell a system he will need to find clients. Finding clients is not so easy, especially if the price you ask for your system is $1000 or more (good systems will never sell for less,because people will be suspicious) . So the seller will probably not find hundreds of buyers. Can he find during 1 year, every day, 1 new client for $1000? Probably not. But as he wants to sell, it means that his system does not generate $1000 a day. If it would generate $1000 a day it would be better not to sell it but to trade it. Selling will also stop after some time when his potential buyers market dries up, while trading can continue for many years. A good system will never be sold, or the price will be very high (millions of dollars).
From the tidbits which I gathered from my sister, her Feng Shui master apparently has developed a superior business model. First of all, this guy only generates three discrete (non-analog) signals or indicators 1) take no action; 2) buy; 3) sell. There is no degree or amplitude involved in the signals. His probability of being NOT wrong is about 2/3 because the "do nothing" signal always works in his favor. Further more, he needs zero knowledge in the relevant domain of discourse. He can sell his signals for nearly any problem. His fees are not trifle either because all his clients are of very high net worth.