Trading Systems

Discussion in 'Trading' started by WCOMtrader, Nov 7, 2002.

  1. I created this post after I read many of your grief-filled posts of losses using systems. (i.e. Thread: Is this what trading is all about?) I hope I can help you understand something (if not help you make more, at least loose less).

    There are many misconceptions that people have about the market: one of the is getting rich quick:
    I hope you are all now at least on the surface aware that even if its is possible by sheer chance: its not worth it and only going to hurt.

    What I really want to write about are you so called "trading systems."

    All your losses are a result of a system performance. Your systems will only work in theory (under controlled conditions). Unfortunatelly for your bottom line, the market is VERY different from controlled conditions; especially now with its crazy volatility.

    Also, buying systems (actually purchasing a system from someone), I think is a big mistake: if they worked so well, than the person selling it shouldn't be selling it, but milking it like crazy.

    After the market conditions change, new patterns develop (or old ones get erased), the system will only be working in theory, and on good days that mimic the old (or the optimal environment). The person developing it quickly realizes this (it can't perform well anymore) and sells the system. Yes it made him money then, but what about now?

    And the system sounds perfect: it makes perfect logical sense, it doesn't promise to provide 1 million % return - but still it fails more than it succeeds.

    What I am saying is that NOT all systems are bad. All of them maybe perfect. Its the timing and the situation. The best way to trade using a system (which is a fairly good idea: you are less likely to fall into idiotic trading patterns after some losses) is to develop your own, custom tailored and made for the CURRENT market. Not only you must develop it, you must also test it and you must maintain it and upgrade (downgrade) it when things change.

    Plus you need to have your OWN experience. By purchasing a system all you are doing is mimicking others. It is hard to learn using someone elses trading, which is something that you are doing. It is like sitting behind me, watching me trade and mimicking everything that I do. If I do everything right - you're good untill a point when my strategy is outdated. If I do everything wrong - you are not able to understand the losses (nor wins) since you did not go through the analytical process of getting into a trade.

    And EXPERIENCE counts. Let me give you a real life example:

    Last month's trading change a lot since August and July. A LOT. I was still stuck in the Aug and July's frame of mind. Not changing my style at all. Guess what:

    October was still very profitable for me: but my losses were out of hand. I would loose several thousand dollars per trade. I finished the month very well, but it could have been at least 50% better.

    Towards the end I finally realized that it is time to change. How did I change? Careful analysis on how the stocks that I am trading change (in terms of volume, patterns, players, price). Then I looked at my losses:
    I have no problem with taking a loss but they were very disproportionate to my wins. They were too large. Why? Simple improper share load, improper exiting, etc.

    Bottom line: after the analysis this month (all 4 days of it lol) I've been VERY positive - while having a lot of losses (but small). Then I decided to see what would have happened if I haven't adapted. Most likely I would have been negative (just about to time to sell THAT system).

    And we are talking about 2-3 months here. What about half a year, year or more.

    Please be very careful trading and buying someone else's systems. Those are bad ideas.
    If you want to learn how to trade from a pro - find a pro and pay him to teach you. Obviously you will need the basics from books, etc. The system will dump outdated and obsolete garbage on you. Believe me, it will not be easy finding a pro who is willing to share his experience (more competetion), and time with you. But if you do - believe me it will be more than worth it.
    Think about it: if at least he teaches you how to loose 75% less (and I saw your losses posted there) Think how much that will save you.....
    Well, those are my thoughts. Feel free to PM me with questions.

    As for a solutio
  2. As you said, we need to review the system from time to time. But as you are reviewing it using the historical data, the market has already changed. It is really a tough job!
  3. bobcathy1

    bobcathy1 Guest

    The worst one I ever used is the one in Investor's Business Daily. I lost more money on that one. And it was not cheap either!

    And I subscribed to a QQQ "black box" service. That was really lame and I lost on that too.

    The Don Miller series and Trading Markets has been the best. I make money every day with them.

    Does anyone here use The Briar Patch?
  4. Te'

    Te' Guest

  5. bobcathy1

    bobcathy1 Guest

    They should change that to CANLOOSE
    the technique only works in bull markets which I did not find out until later.:p
  6. WCOMTrader, I share some of your sentiments. My feeling is the emotional fortitude to stick with a trading system for 6-12 months in order to truly show if a system is viable or not is generally only available in a person when they have helped design the system. There are exceptions though.

    Being familiar with system design and development is really what will greatly enhance the likelihood of a system trader succeeding.

    I would also propose, however, a small group of system vendors simply understand long term viable systems can have 2-3 months of negative performance before getting back to profitability and they solicit services to aid in the smoothening their earnings. Also, trading capital for bright minds can be surprisingly scarce.

    Your advice of heeding warnings when it comes to vendors is well taken though.

    good trading.
  7. dbphoenix


    Probably would have been a good idea to read the book. IBD has a tendency to pump stocks because it's a periodical. They can't stay in business encouraging people to stay out of the market.

  8. bobcathy1

    bobcathy1 Guest

    I read both of the books and studied the CD too. I think it was that I had so many stocks to keep watch on, and as you said, they were pumping stocks.
  9. dbphoenix


    You're not alone. A lot of people forget that "M" stands for Market, and that it has to be in an uptrend. The technical end of CANSLIM is buying breakouts, which require at least a minimum of momentum.

  10. bobcathy1

    bobcathy1 Guest

    Definatly that was my problem with it.
    I did not get the M part through my thick skull since I kept thinking it was so low it would rally. Rookie mistake:eek:
    #10     Nov 7, 2002