What do you look for when reviewing a trading system’s results? Let us know… just hit the comment link below!
Norman Hallett here with you next 4 Minute Drill for Traders.
Picking a trading system to trade with is a daunting task.
… and one of the things we tend to look for to judge whether we want to adopt a trading system is that system’s ‘track record’…. and that can be a problem.
“Track Records” are a tricky thing… and the reason they’re tricky is because the author of a tracing system can ‘frame’ a track record to look better than it really is.
Here are a couple of things to beware of…
I came across a site last week that showed a great track record.. and they were very detailed about what traders were taken… so it looked good on first blush…
… but when I looked closer, I noticed that the trades were made in 2008! This fact wasn’t part of the ‘sales copy’ I was reading… so you’ve got to consider that a red flag.
When I inspect track records, I want to see recent trades as well as more historic trades, and you should, too.
Another red flag is when I see track records of very short duration… say less than 6 months… and I’ll tell you why…
Most markets have seasonal tendencies…. the stocks have Santa Claus rallies, and choppy summers, etc, etc., and the grain markets have weather and harvest seasonals.
I want to see a track record long enough to span through all phases of the markets I’m trading.
Although, in most cases, you want to SEE a track record, you generally shouldn’t be putting a whole lot of weight on it. They are easily manipulated and many times even mis-represented.
What you SHOULD but a lot of weight on when deciding on a trading system is the WAY the system makes decision and whether that decision-making process is valid.
For me, candlestick analysis makes sense… and I also have a true, mathematical appreciation for the Fibonacci sequence…. so I tend to be attracted to systems that include that kind of analysis.
For YOU, you need to decide what types of analysis make sense to you and seek systems using those methods.
If you do THIS, you’ll feel comfortable running the trading system… and be willing to take short losses more easily and have the patience to allow a winning trade to run.
So, inspect YOUR values FIRST and then find a system that fits YOUR trading values… and keep the right perspective on those STELLAR Track Records that you see… they are less important then understanding the process used to get those results.
OK… that’s it for this addition of 4-Minute Drill for traders.. so until next week…
Category: 4-Minute Drill for Traders