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Buying A System...
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Buying A System...

  #1 (permalink)
Elite Member
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Buying A System...

Everyone who has ever traded is likely to have the urge to purchase one of the million trading systems available. In my eyes anyone who sells a system is a shill/salesmen. So I propose the question, has anyone ever had long term success with a system they purchased? Do you feel that without this system, you would have been successful otherwise? What made you decide on the system itself?

I don't really want to hear the specifics on the system or set anyone up for promotion. With the amount of free and legitimate content online, I am genuinely curious why someone would pay for indicators or strategies...

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  #2 (permalink)
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  #3 (permalink)
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Ziebarf,

You may want to check out this link The next Wall Street tycoon will be a computer program | ITworld. Not sure if you heard of Collective2, but Matt is the founder. I thought his take on the whole thing was pretty interesting and refreshing. Yes, he does make money off systems listed on Collective2, but he provides, in my opinion, an objective way of evaluating system's performance by having system vendors post their system's trade signals on the site in real-time. BTW, I'm not affiliated with Collective2.

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  #4 (permalink)
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Thanks Dtrade,


I have heard of collective 2 and it is indeed an interesting concept. I however, am not in the market for a trading system or anything like that. More or less, I just wanted the opinion of others on purchasing a system versus pooling resources and figuring it out yourself.

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  #5 (permalink)
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dtrade88 View Post
Ziebarf,

You may want to check out this link The next Wall Street tycoon will be a computer program | ITworld. Not sure if you heard of Collective2, but Matt is the founder. I thought his take on the whole thing was pretty interesting and refreshing. Yes, he does make money off systems listed on Collective2, but he provides, in my opinion, an objective way of evaluating system's performance by having system vendors post their system's trade signals on the site in real-time. BTW, I'm not affiliated with Collective2.

I'm not sure you answer to Ziebarf's question.
About Collective2, the owner of the site is making money, that's sure. But for others, system creators and system buyers, not sure at all.
So I don't answer to the question, but looking at C2, the quantity of available systems, the performance of both of them, gives an idea of what to expect from other systems vendors.

Success requires no deodorant! (Sun Tzu)
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  #6 (permalink)
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Bite the bullet and try to create your own system instead of purchasing one. Most of the stuff out there is garbage. Keep in mind that PURCHASING a system is different from LEASING one. No system developer in his right mind will be willing to sell a money-making trading system for a 'reasonable" price. Now, leasing or offering a subscription to the system (black box) - that's different. Personally, I would have a LOT more faith in a system that was offered on a lease/subscription basis rather than for outright sale.

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  #7 (permalink)
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For me, when I first started trading I felt "safer" buying a system from what I perceived to be a professional than I did reading a bunch of forums. It seemed odd to me that folks would be nice enough to post about how they trade and for free. I wasted several thousand dollars before I realized the truth.

None of the systems ever worked for me, but they might work for some other people.

It also took me a long time to realize how the electronic markets really work and how they are manipulated, but that is off topic...

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dtrade88 View Post
Bite the bullet and try to create your own system instead of purchasing one. Most of the stuff out there is garbage. Keep in mind that PURCHASING a system is different from LEASING one. No system developer in his right mind will be willing to sell a money-making trading system for a 'reasonable" price. Now, leasing or offering a subscription to the system (black box) - that's different. Personally, I would have a LOT more faith in a system that was offered on a lease/subscription basis rather than for outright sale.


Can not agree more.

Using common sense, If i have a machine/code/system which can build wealth for me and make me millionaire/billionaire , why would I ever sell it for a few bucks ? I know many might not agree with me , but same goes with most of the books either. Its your practical understanding to the market which makes money for u.

I had never got good experience with any systems which r being sold in the market. I have read many books ( they r useful for reference to be honest ), gathered info from it which I found useful enough in my style of trading. I escaped rest of it. Took me few years to get on breakeven, understand market methodology ( which is again very dynamic ) , And finally after years , yes now its possible to get higher % of winning ratio in the market though still its in discretionary phase. Building a winning automated system , is really very tricky. I'm not sure but there r only a very few systems which could actually make money on fully automation mode ( I can be wrong here, not sure about quants and mathemagicians ).

Darshiit

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  #9 (permalink)
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Don't Trade (Fill in the blank)

I incorrectly thought the systems would help me become a better trader, which is why I purchased them. I fell into the, "If I can just click a button when they tell me to and make money, why not?" They didn't work for me.

I've paid for my share of systems and looked at many others. The systems I've reviewed get busted when there is consolidation so they say, "Don't trade when it looks like (fill in the blank here)." But they do a poor job teaching you how to avoid that area. If you have to teach yourself how to avoid that area why do you need them?

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  #10 (permalink)
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Some reservations on black box systems


All strategies can be exploited

The problem is that any system that produces regular profits can be exploited. Therefore it is only profitable for a limited time period. When it comes to the market, it has already seen its best days.

Trading is a game with permanently changing rules. If you take the rules of the Turtles and apply them today, they will not work in the same way, as they worked when the Turtles reaped huge benefits by using them. The Turtle system bought one tick above the n-day high.

The next generation of systems exploited the breakout systems. Linda Bradford-Raschke has a setup called "Turtle Soup", it feeds on the prior breakout systems. Another example is the 2B setup of Victor Sperandeo, which also feeds on break-out traders.

The Axelrod Computer Tournament

To understand how simple stategies compete with or feed on each other, I suggest reading the book by Robert Axelrod, "The Evolution of Cooperation". Axelrod organized a prisoner's dilemma tournament, where scientists from various faculties submitted automated strategies based on a fixed set of rules. They played a repetitive prisoner's game, in each round the strategies had to choose between cooperation and defection. The decision could either be based on feedback (for example tit-for-tat, mirroring the behaviour of the opponent in the prior turn) or on random. Axelrod organized several tournaments, and between the tournaments their was some evolution. The first rounds clearly were won by Tit-For-Tat and the universe became more cooperative. After some time, however, more complex strategies evolved and actually cohabited with Tit-For-Tat. However Tit-For-Tat did not disappear.

Side note: The solution of a single prisoner's game is known to be the Nash Equilibrium, as defection is a dominant strategy. The feedback loops of repeated prisoner's dilemma games change that outcome and a whole universe of strategies is born. Consider the fundamentals as similar to the Nash equilibrium, and technical analysis and derived trading strategies as a tool to master the feedback generated by the human emotions and the rules of the continuous auction.

To keep pace with the evolution of strategies, you would need to create an algorithm which has adaptive capabilities, detecting the rules used by other strategies and exploiting them. A stable strategy that just uses a simple set of rules can never do that.


Life Cycle of an Automated System

(1) Every automated system, which is successful, feeds on the behaviour of other traders or trading algorithms.

(2) In its initial stages it acts as a parasite or predator.

(3) When the population of the parasites and/or predators has grown to significant size, it becomes itself a target.

The next step in the life of a is soup!


Evaluation of a Black Box System

For the buyer of a black-box system, there are several traps:

You do not know to what extent the system has been retrofitted to show impressive results over the reference period. You would need to know the developper and check backtest, walk forward and Monte Carlo simulation to have an idea of the robustness of the system.

If the system has passed the Robustness test, you would want to know where it is in its life cycle. If it is probable it will be exploited even if nobody knows the rules, because the other systems that unknowingly exploit this one will thrive!


A Business Modell for Developpers of Trading Systems

Trade them as long as they are profitable and sell them when they start getting exploited.


There is Nothing such as a Free Lunch

The above reasoning shows that it is close to impossible for any would-be-trader to evaluate the future performance of a black box system. Or to put in other words: There is nothing such as a free lunch. If you want to make money you need to do your homework. I have not heard of any great trader, who became rich, because he bought a black box system on the web.

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