Szeri and Nos Biggs Trading helps you Select a Profitable Trading System
So… you are shopping for a Trading System. You have been convinced by a slick promotion to consider an awesome, super, magnificent , and highly “profitable trading system”. that you have no experience with or had a chance to back-test. Duh ? How can you be confident that this system will produce gains to those advertised for you?
Since we know few can predict the future, systems can suddenly yield losses in next months or years or can become obsolete and not trade-able.
There are some tests you should complete before accepting a trading system. These tests will show the robustness of your system. When your system is passing these tests, you can have greater confidence there will be continued success in the future.
Test 1: Make sure that you have a solid liquidity rule, that your entry and exit prices are realizable.
Test 2: Examine again your trading systems and your rules (This is very important).
I have tested dozens of trading systems that showed great results initially but after more examination, I found them nearly impossible to execute based on my chose lifestyle.
Check if there was one entry that made a very big gain, as this type of result will skew the result in backtesting and hide the overall weakness of the system.
Test 3: Change twice or three times the period for the simulation, When you still good results then it has passed the test 3.
Test 4: Change values of some parameters or variables you have in your trading system rules, you must change one value and then back-test, change another and then back-test…
If the results are not affected very badly then it passed the test 4. One parameter error should not impact your system.
Test 5: Try to restrict your system from buying 5% or more of any single position you previously bought when doing the back-test. Then re-run the back-test. To pass this test, the system must show pretty the same results as before.
Test 6: Your equity curves must have a smooth upward curve, check some statistic values like sharpe ratio, sortino ratio, standard deviation, maximum drawdown, an average day for gains recovery…
It depends on the risk you are willing to take. WE strongly suggest that you consider only systems that have: higher Sharpe ratio, higher Sortino ratio, lower standard deviation, lower maximum drawdown.
Exclude systems that have a very large max drawdown, standard deviation and average day for gains recovery.
The most important factor the traders want to know average days for gains recovery.
This is the average number of day that you must wait until your equity value will go back to the same level before the drawdown happen. ( Previous highwatermark)
Big values will let you wait for long times before recovering gains and for sure many traders will abandon their trading system, and that’s the worse thing that can happen for a trader as just after that, you guessed it, your system will show excellent results. (That so often happens)
These tests are very restrictive and you will reject 95-97% all your trading systems, When trading it’s your money you are risking so unless your vendor is willing to allow you access to his EA or ROBOT for 30 days you should not even consider an evaluation.
Here are 6 essential elements to consider about a vendor’s system.
- Look for the vendor’s pedigree! Has he been a traded successfully with his system?
- Will the vendor share references to several who are using his system successfully?
- Will the vendor allow you to demo?
- Does the vendor offer support and training?
- Is this a licensing or selling you of a system? You want a license as that means there are upgrades and adjustments that can assure market changes are made.
- Cost versus value : Low cost = low value . High cost can also mean low value but rare is the system that will be “Kmart priced” and yet deliver results you will be happy to have.
We have access to several vendors with proven records that we have tested as above. as a feature of our LuXury services we provide and train on them.
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