9 Steps to Finding the Right Trading System for You !
June 14, 2004
Attain Capital has the envious (or unfortunate - depending on your slant) position of seeing "The Next Best Thing" several times per week. Hardly a day goes by someone isn't telling us about the best system ever developed. But out of all these great systems - only a handful actually make it to our recommended system list. How can you weed out the good from the bad and find a trading system that's right for you? Start with our list of 8 steps to finding the right system below.
1. Don't try and reinvent the wheel - The first step to finding a good trading system is to not fool yourself into believing you can create it. The numbers of hours, days, and years professional developers have spent developing their wares simply dwarfs the amount of time any one individual can put towards the endeavor. If you must know whether you have the "right stuff, make sure to send your system to someone such as Attain so they may stress test it for you. We can quickly let you know whether you have a winner or a pipe dream on your hands.
2. Narrow your search - With thousands of trading systems out there - it is imperative to narrow down the universe of systems your looking at to a more manageable number. Attain has researched thousands of systems, and ranks hundreds of them at www.systemrank.com. Starting with just those systems ranked four or higher is a good place to start. Another filter would be to just look at the recommended systems of a system trading broker. Be wary of brokers without a recommended list, however, as they may be willing to trade any system there is in order to make commissions, without caring for the well being of your hard earned money.
3. Know the Developer - One rule of thumb which seems painfully simple is the one most often broken. Actually talk to the developer of the system your thinking of purchasing. Be very careful of those systems who have websites without contact info, no mailing address, etc. These people are not letting you know who and where they are for a reason. (And we can't think of any good reasons) Also beware of the hard sell, and promises of profits without mention of the possibility of losses or mention of drawdowns. Lastly, check the NFA's background search tool at http://www.nfa.futures.org/BasicNet/?aspxerrorpath=/basicnet/Search.aspx and do a Google search to check websites and message boards about the system and its developer. You'll be surprised at what you find.
4. Avoid high, upfront costs - One of the surest signs of a trading system developer more interested in selling software than making clients money is a very high upfront cost. With several good systems out there - it just doesn't make sense to pay over $5,000 for a trading system. The tendency of developers who charge a lot of money up front is to disappear after the sale, versus those system's which charge a monthly fee or cost below $5,000. These developers tend to care more about performance, as they must make many more sales, or have clients around for many more months.
5. Avoid Pirated Material - A corollary to watching out for costs that are too high is being cautious of costs which seem to good to be true. In particular, avoid at all costs pirated material and trading systems. There seems to be more and more of these Russian "hacked" systems available, and whether it is one individual or several selling these, it is both illegal and unethical. In addition, m Many systems must be operated with exacting parameters, patches, or upgrades, which the pirated version more than likely doesn't have. Thus a pirated version runs a greater probability of being unprofitable. Lastly, we have heard several reports of investors who have tried to purchase pirated systems receive nothing after payment. In all aspects, these pirated versions should be avoided.
6. Find some actual trading results - One of the unfortunate hallmarks of a curve-fit system is its inability to make money in real-time, with real money on the line. An easy way to combat this and find systems which are less apt to be curve-fit is to find some actual trading results of the system you are interested in. Attain posts actual customer fills and the monthly profit and loss achieved by customers for different systems. In addition, many developers trade their system personally and may be willing to show you results. Unfortunately, the grand majority of trading systems have no actual track record - instead relying on often unrealistic hypothetical results. Check the actual results and make sure they line up with those hypotheticals before investing.
7. Beware adjustable variables, upgrades, & new versions - Many so called trading systems available today are anything but, and it is important to identify these for what they truly are. A trading school is not a system, an indicator package is not a system, and programs which allow users to change every and any variable are not trading systems. These are not systems because they don't make your trading consistent. At the best, these can be used by traders to create a system - at the worst, these types of things are the trading equivalent of a horoscope, always telling the naive and needy what they want to hear. Most of these so called systems do a very good job of showing you how a system fit onto past charts, and how a certain wave pattern seems to appear again and again on the past. None of them we have seen can actually show you how to trade these profitably in the future. It is also important to be wary of too many upgrades or new versions by a system developer. The ideal situation would be a system which you "set and forget" for many years. The developers don't make much in residual income from such a system, however, and often release upgrades or new versions to mine their current customer base for some more money. There are important upgrades and patches which fix small bugs and situations which you should definitely adhere to, however.
8. Do a Personality Test - One important factor which is usually overlooked is whether or not the trading system you invest in fits your personality. This may seem like something more important to Internet dating than trading systems, but the better a system fits your personality - the better chance you have of long term success. Too many times, a person who insists on seeing more winning trades than losing ones will invest in a system with a winning percentage less than 50% - than wonder why their investment is not meeting their expectations. Conversely, an investor may choose a system based off very low volatility and small drawdown - then wonder why their isn't more action in their account once started. Investors need to look past the basic performance figures when deciding if a trading system is right for them, and look at the personality of the system - does it hold trades overnight, does it win on more trades than it loses, does it risk a lot or a little. Each of these seemingly insignificant factors can weigh heavily on an investor's psyche once trading is underway, and threaten to keep an investor from sticking to her guns.
9. Use a professional trading system broker - We obviously have a vested interest in telling you to use a broker for executing your trading system, but the argument for doing so is still valid. On the execution side, a professional firm such as Attain has a room full of traders dedicated to monitoring the trading system your looking at. An individual investor would have to sit in front of the machine all day or hire someone at a much higher cost to do so. Beyond the physical requirements, a trading system broker has more experience, data, and history with trading systems than you could ever get. This translates into added value in execution, research, and due diligence on each trading system you're interested in.
IMPORTANT RISK DISCLOSURE
Futures based investments are often complex and can
carry the risk of substantial losses. They are intended for sophisticated investors and are not suitable for
everyone. The ability to withstand losses and to adhere to a particular trading program in spite of trading
losses are material points which can adversely affect investor returns.
Feature | Week In Review | Chart of the Week |
Feature | Week In Review | Chart of the Week |
Except where noted, the below Profits/Losses based on closed out trades. $50 per R/T commission included ($30 per emini) Percentage gains based on developer recommended initial balances as listed at www.attainaccess.com.
All hail the Chief. In what was otherwise a very quiet week, a handful of trading systems were profitable due to a great trading range on Monday. The market rallied nearly 14 points in what many traders thought was patriotic buying in honor of President Reagan. Beyond that, summer trading conditions may have finally made their way into the index markets this past week as it was unusually quiet with an off day Friday for a National Day of Mourning.
**Day Trading**
After a rough start to the month, several day traders bounced back last week. Leading the way were Blue Wave SP and Compass SP - two systems that have had their fair share of troubles lately. Blue Wave SP took two winning trades for profits of +$1950.00 per contract while Compass took profits of +$1625.00 on Monday’s rally.
The day trading success was not limited to only two systems though. AG-Xtreme SP posted its second profitable week in a row making +$925.00 per contract and R-Mesa 5 SP took profits of +1507.50 per contract also on one trade. The only day trader that suffered a loss was Helix SP which lost -$312.50 per contract after trading four times last week.
The e-mini traders we’re also busy with RC Success ES, Sniper ES, Impetus eRL, and Cobalt NQ all taking profits. RC Success, last months top performing day trader, continued its success making +$817.50 per e-mini contract after taking profits on three out of four trades. Sniper ES was not far behind making +$547.50 per e-mini contract while Impetus e-RL and Cobalt NQ took identical profits of +$360.00 per e-mini contract.
**Swing Trading**
While there was not that much movement in the normal market sessions last week, there were a couple large overnight moves in the indices that proved to be profitable for the swing traders. I-Master eMD benefited the most making +$965.00 per contract after two reversals. I-master ES was also profitable making +$305.00 per contract while I-master NQ lost -$170.00 per e-mini Nasdaq contract.
The Tzar swing trading system highlighted in last week's newsletter had impressive returns across three markets as the system took profits in the ES, NQ, and e-RL markets. The system performed best in the NQ making +$695.00 per contract but the ES was not far behind making +$682.50 per contract. Tzar e-RL also continues to perform well making +$360.00 per e-mini Russell contract.
In bond swing trading both Mesa Bonds and Mesa Notes remain long and did not trade last week.
**Long Term**
After a very quiet first week of the month, several long term systems picked up the pace last week as markets such as foreign currencies and energies made significant moves. Currencies rallied hard against the dollar on Monday but quickly pulled back as the talk of increasing interest rates and the G-8 summit propped up the greenback. Trendchannel and Aberration took heat in the foreign currencies with Trendchannel losing -$462.50 per contract in the Yen while Aberration lost -$1950.00 per contract in the Canadian Dollar. Aberration rebounded slightly in the Mexican Peso taking profits of +$345.00 per contract on a short trade.
The energy markets sold off significantly as OPEC production increase continues to weigh on the market. Trendchannel took profits of +$6970.00 per contract on a long crude oil position it had been holding since early November during the sell off. Checkmate also traded in the energies but did not fare as well losing -$1337.00 on a long Natural Gas trade.
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IMPORTANT RISK DISCLOSURE
Futures based investments are often complex and can
carry the risk of substantial losses. They are intended for sophisticated investors and are not suitable for
everyone. The ability to withstand losses and to adhere to a particular trading program in spite of trading
losses are material points which can adversely affect investor returns.