• Do Trading Systems Work

  • “So…. Do trading systems work?” I get this question ask quit often from my students and my answer is always the same. What do you mean by “Trading System”?

    If one is talking about what is called a black box system which is a closed proprietary system and you don’t know how it works then the short answer is I’ve never seen a black box system work going forward in time. I’ve seen hundreds of them work in back testing which is meaningless.

     Black Box Trading Systems Don’t Work

    I’ve got a million-dollar challenge for anyone who says they have a “Black Box Trading System” that works. I’ll put up a million dollars in a trading account and the developer puts up a million dollars in a trust account and I will trade their system for a year. They can have 100% of the profits that their trading system makes. I will trade it exactly like they designed it and I won’t vary it at all. Now at the end of the year if their system loses money then they pay me 100% of the losses from the trust account.

    I can’t think of anything more fair than that but do you know how many of the system developers have taken me up on that offer? Zero, nada, none. It makes me wonder why. Here they try and sell you a trading system, and I’ve seen some for more than $250,000.00, but yet they won’t take me up on my offer. Humm…

    So what does work? A Trading Strategy works but what is a trading strategy? Simply stated a trading strategy is simply a set of rules that you use that has consistently worked over time.

     There is No Golden Goose in Trading Systems

    Come on David, aren’t you splitting hairs here? No, not at all. Use some common sense for a minute. If anyone had a trading system that works where all you had to do was fund an account, turn on their magical software and let it run 24/7 and it makes money for you while you sleep why would they sell it? That would be like selling the golden goose and we all know how that story turned out.

    I’m from the South and quite proud of that fact too. We have some great sayings down there and one of them is “That dog don’t hunt.” Of course it means that something just doesn’t work or isn’t true. So anytime you see a trading system for sale just remember; “that dog don’t hunt” and it will save you a lot of money, time and aggravation.

    Earlier I said that a trading strategy works but what is that and how do you get one? Well I can tell you right now, that you have to develop one. I know that’s probably not what you want to hear but it’s true. You might wonder how long it takes to develop a trading strategy that works and that my friend is a question that I can’t answer because it’s different for everyone. I can tell you how long it took me; about two years. But I did not have a good trading mentor or as we would say down South; a good coach.

    Speaking of coaches, my favorite story is about Vince Lombardi, the coach for the Green Bay Packers who won more football games than probably any other team while he was their coach.

    Every year, coach Lombardi would get all the players suited up for practice and take them to the middle of the field and form a circle. He would then have a football in his hand and hold it over his head and say, “Gentlemen, this is a football.” Do you think he said that because they didn’t know what a football was? Of course not. He was simply saying this is where we are going to start, with the basics.

    So if you want to learn to be a successful trader then you also must start with the basics which of course is not a football but rather a chart.

    So ladies and gentlemen, this is a chart!

    Do Trading Systems Work

    Now you are probably thinking that you already know what a chart looks like so why did a put it in here? I did it for the same reason coach Lombardi held up the football. To tell you that this is where we are going to start this “game” called trading; with the basics.

    I make very few promises to my students but I will make you this promise; stay with me, listen to what I tell you, trust that what I tell you is in your best interest and I can be your trading “coach”.

    How long it takes you to learn to trade for a living is not something I can tell you because it’s different for everyone. But what I can, and will tell you is that anyone with some common sense, the desire to learn (I’m going to use that word “learn” a lot), who is willing to put in the time to master the “game” can learn to trade.

    But you need a coach and if you will allow me to be your trading coach I can assure you that you too can learn to trade for a living. There’s that word “learn” again!

    And the next time someone ask you, “Do trading systems work”, just show them a football or better yet a chart.