Everybody has a different definition for the word "perfect." Some people would be content with a system that makes 100% per year with an 80% drawdown. Other people would be happy with 20% per year with 5% drawdown.
In my opinion, the perfect trading system will never exist because it is a day-trading system with 100% big winners and zero drawdown. If I had this system, I would use it for a year, make a small fortune and then destroy it quickly. Someone greedy could start out with a penny, use it for 10 years, and takeover the entire planet. It is too dangerous.
One could say the "system" is "perfect" today. There are winners and there are losers on any given day. The money wheel keeps on spinning, albeit with the occasional blowout.
The trick, of course, is to be on the winning side more times than not. Take my tiny piece out of the middle of the spin and go home for the day. That's the system for me.
From a practical standpoint, I would give a manual trading system designed for individual traders to anybody who wants it. Well... I would sell it. I'm not that charitable. That vast majority of people will not trade it for long because they won't or can't do the inner work and practice required to trade it skillfully; they'll fade away. While they are fading they will add a little liquidity to the market which is good for all of us. I don't think a system in this category needs to worry about predators trading against it. Think something like Woodies CCI. I'm not sure I would invest much time trying to find those trades and profit by taking the other side of them or otherwise exploiting them. I don't think Woodies gang of followers are really moving the markets around.
(mmm.... while writing this I devised a devious plan. Sell a strategy. Recruit a sizable following. Call out trades in a trading room. Trade directly against them. That might just work. Especially in an otherwise illiquid market. Or set you sights a little higher and could become a Forex broker and shamelessly implement this strategy! Remember, if you are the next Bernie Maddof, you didn't get the idea from me! See you on CNN....)
Proprietary trading systems at funds, prop. firms, etc. of course need to stay proprietary for all kinds of good reasons. Not the least of which is, as mentioned by a previous post, if you tip your hand somebody is coming after you and is going to trade against you. Then your "perfect" system won't be so perfect anymore. And the market will once again have found balance until the next prefect system comes along.
I don't think anyone really believes there can ever be a perfect system. Anyone who understands trading knows that even a very good system or method with a relatively high mathematical or statistical positive expectancy (long or short) is only as good as the trader that trades it. Practically every book I've read on the subject of trading brings up this idea of the fallacy of the holy grail.
So for the sake of argument let's assume that this system is not "perfect" but rather simply a method of trading that has a higher than average win rate; let's say 60% and winners are twice what losers is not are. While this may not be the perfect holy grail system, any dolt can mentally project the longterm results of of trading this system perfectly. If one could trade this as effectively as your backtester you would be very wealthy in no time at all! The system I trade is an adaptation of Alexander Elder's triple screen method and it has a win rate of around 70% and winners are well over losers by a factor of 3:1 or better. Why am I not wealthy (yet)?
How would you trade this above average (but not perfect) system? Would you trade it as effectively as your backtester? I think not. We're human beings with emotions putting our hard earned money at risk. We simply have too much mental/emotional baggage to trade this respectable system as perfectly as the back-tester. It can't be done unless you're a Vulcan!
Now, would I tell people about this really good (but not perfect) system? I would because for every person I explained the concept to, only a very small fraction would be able to trade it properly. None would trade it as effectively as the back-tester and an extremely small number of those would give it an honest try. Most traders would make only a few trades based on it. They'd lose a few trades and give up on it before the the end of the week. Don't forget, there are hundreds of thousands of traders out there. They all have different beliefs about the markets, different methods they are used to; feel comfortable with; are able to understand. The variety of methods and the variety of competencies among traders is so great that you would be unable to get the majority of traders (individual or institutional) to even consider this system even if they could trade it perfectly. I think the (speculative) fear that telling too many people will ruin the system is unrealistic.
How many traders does it take to make a system worthless? 1/2 of all traders trading a system? 25%? 10%? As you think about this consider that there are only a very few basic trading methodologies. Trend following is one. I'm quit certain that at least 1/2 of all traders are consciously trading some kind of trend 'system'. What are the other half doing? If so many are trading the trend on any particular time frame does their trading inhibit the trend or contribute to it in some way?
Maybe I've raised more questions than I've answered but I know a few things are certain to me.
1. No perfect system exits - markets are too complicated
2. The trader is the weak link in the system (I know this first hand)
3. Telling people about a trading concept doesn't automatically make it worthless- the market is just too vast and complicated for this idea to hold up in reality.
4. You don't need a perfect system to make a good living as a trader - you need a robust system with a relatively high win rate and a 2:1 or higher reward:risk ratio traded by an experienced trader who understands his/her system thoroughly and who knows it's strengths and weaknesses.
"I've missed more than 9,000 shots in my career. I've lost almost 300 games. 26 times, I've been trusted to take the game-winning shot and missed. I've failed over and over and over again in my life. And that is why I succeed."
- Michael Jordan, 5-Time NBA Most Valuable Player, 6-Time NBA Champion
Last edited by ShruggedAtlas; May 30th, 2011 at 04:19 PM.
Reason: CORRECTION AND CLARIFICATION
The following user says Thank You to ShruggedAtlas for this post:
The only perfect system that exit is a curve fitting system that plot on historical data.
Market is make up of human being, and our psychology is changing constantly. That mean, your perfect system for today will no longer be perfect tomorrow when psychology is changed. Your system must change to adapt this new change.
When I think of sharing a system I associate the idea with a bunch of prospectors digging for gold in one area. If I struck gold and told everyone else, how much would be left for me? Sure the analogy breaks down a little when comparing goldmines to markets, but imagine if every trader tried to buy the same stock at the same time, because the system indicated that it was time to do so. The scramble to get in would force the price up until the market ran out of buyers. By which time some analyst would have commented that there was no reason for this price to rise, causing the most recent buyers to question their motives in holding the stock, and start to sell. The price quickly falls back to where it was before the signal, or below.
So where does that leave the system owner?
Before long, there are so many traders rushing to get onto a position that the system owner finds that by the time s/he
looks at the market any potential for profit has evaporated.
As many people have said before in this thread, the shared system would work for a bunch of people for a while, but sooner or later it would work for no one.
So my approach would be - horde the system, but tithe a portion of the profit to charity.
Broker/Data: Multiple broker + Multiple feed (for access to specific exchanges)
Favorite Futures: European Indices, Precious Metals, Energy
Posts: 423 since Dec 2013
Thanks: 204 given,
Nothing is perfect, however there are better ways to improve your odds of making money from the financial markets.
Being an intermediary for client transactions banks take a spread on the price quoted to you and your client takes the loss/gain, of course factoring in risk management and operational cost and considerations. Banks/brokers do this all day long. With varying success, however I'd suggest are comparably more successful than the average trader on the ground. Intermediaries in this sense thrive off of the activity of market participants and why your broker may appear so friendly ;-) I guess the same could be said for software vendors/service providers. My cynicism if you read between the lines being based off seeing a lot of bad providers and b/s making it harder for us all, not to bash everyone there are some great intermediaries out there with good business ethics and integrity (not as many as I'd like but definitely some if you do your due diligence). But that opinion aside a valid business model/system in this context.
Another way is to have a ton of money eg being a market participant with purchasing power enables you to move the markets at times (when other big participants may not be active for example). And you can as the saying goes pick up pennies in front of the roller-coaster, and many hedge funds etc do this through HFT off the back of being highly capitalised. Unfortunately financial barriers to entry prohibit this making it a limited club for the big boys/girls.
Otherwise being an individual fish in an ocean full of sharks, the only good (not perfect) system in trading purely is to have the right psychology in understanding the context of your position and being strategic in your activity. And as not to dodge the question I think if you don't help people honestly why would you expect the same back, so from a point of good practice I'd share knowledge yes. But then I'd definitely be reluctant to share my competitive edge as that's how I stay competitive. So it depends on the perspective taken on personal and professional plus I'd finally add that a lot of your system whether we know it or not is in our psychology, that that is much harder / impossible to teach.
Last edited by sands; July 27th, 2014 at 07:38 AM.