Trading systems work .....until they don't.

       As a person who is an active trader you can believe that I have come across my share of "systems:" that are for sale from so called "experts" in the forex , stock , futures and any other markets you can think of. do a simple Google search anything relating to trading and you will be hit with an overwhelming array of advertisements promising you vast riches for a mere $29.95 a month or $900 one time.

They all say something like " This system has earned 1000 pips in the last month and you can have our SECRET trading strategy delivered right to your email!" The problem with something like this is it  reminds me of and old business saying that I heard many years ago and it goes something like this..... "no one sells a profitable business. If they are trying to sell it they are not giving you the whole story and something is wrong." The same method can be applied to trading strategies sold online or elsewhere. Now I am not saying that ALL systems sold online are bad in fact , some of them can be quite profitable if they are managed correctly. 

Using the above example even though this system has supposedly generated 1000 pips in a month it does not tell you how many pips were LOST in the last month. What was the draw down for this system? IF you have a $1,000 account and you were trading mini lots , 1000 pips would be good unless you also lost 2000 which  would bring your account to a nice big fat goose egg. 

On another side of this are systems that actually do work but are so old and so well known that they cease to be profitable anymore. The best example of this is one of the best known systems that I have ever read about and that is the Turtle trading systems developed by 2 traders in the early 1980's. I am not going to go into the logistics of how the system works , you can Google it for more info , but basically it was a simple trend following systems which made a group of ordinary people become very successful traders. The problem became that once everyone learned about this system and started using it it seemed to not be as profitable as it once was. This happens because the thing that the system exploited in order to be successful suddenly was known by everyone and turned around into and unsuccessful system. Behavioral finance kicked in an people took notice.  The same thing could be said for systems that are sold online. If everyone knows about it and everyone is using it eventually it will fail. 

The best approach , at least that I have found, is to take bits and pieces of systems and create your own.  Make sure you run sufficient back tests to see how it will do over the long term even though back testing has its limitations also but that is for another blog. 

Make your own success! 

Pipmesiter.