Do Trading Systems Really Work?
Sometimes we have to forget about all the hype and just think about what is really important. When George Bernard Shaw was asked if he were in the National Gallery and there was a fire, which painting would he try to save. He answered, “The one nearest the door of course.” If you have found yourself searching the web for trading support and come upon a site (more likely like a couple of hundred sites) that tells you the author has created a trading system that generated a rate of return that would be a work of art, it is time to start looking for the door. Yes, there will be a strategy and yes, he can say there were signals created but he often will not tell you how he created the system. System developers use a tool called optimization. In the hands of an experienced developer or trader this is a tool that can help in fine-tuning an intelligently crafted system. Optimization takes the many variables in a system and allows a developer to test each combination and inform the developer, which set of variables, resulted in the best return. The combinations can be in the tens of thousands to be tested and this kind of work is exactly what computers were created for. After a short time there will be a presentation of the best set of variables. But understand this is just happenstance for that particular investment vehicle over that specific period of time. Change the vehicle or use a different period of time for the back test and the results will most often be completely unrelated to the original optimized system test. There is no shortage of developers that either do not know this or they know it and chose not to tell you the devious approach they have taken as they attempt to encourage you to send them some money for their expertise. We just searched Yahoo for “trading systems” and found over 18,000,000 websites in the search. So, be careful out there.
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