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Ultimate Vendor Vetting Process Proposal for FIO


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Ultimate Vendor Vetting Process Proposal for FIO

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  #1 (permalink)
 KhaosTrader 
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Hi,

I know we all wonder if ANY of these vendors are successful or not. Many ask these vendors for real trade records, but there are SO many excuses in terms of regulations, privacy etc...

So it got me thinking....

Why not we make a Vendor prove their system's worth by having them open a trade journal thread and trade a TopStep Combine. Here are a few benefits to the idea:

1) If they do that, they cant game the system (play 20 combines and hope 1 works, and just show that)

2) We can get answers regarding drawdown, trading style, and the like

3) It will be educational for all, as we can see how they manage trades, losses and money management as well as their success (or lack thereof) of their trading methodology.

4) the 150k Combine costs a mere 375 dollars or so.. This is a small marketing expense, and the exposure and credit giving to a vendor who proves they can pass will offer a huge payback many times over the investment.

So maybe these vendors cant put their own money where their mouth is. But TopStep has a platform that will assist in evaluation....

If a vendor cant trust himself enough to do a combine and prove his method, why should we trust them with our money and time?

Just an Idea...

KhaosTrader

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 rleplae 
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I'm not a vendor but i have my comments on this.

1. Trading does not equal to a system, unless you are talking about a full automated algorithmic system and even then there may be other things that decide you to put it on or off. Giving the same algo system to different persons who don't turn it on and off at the same moment will yield different results.

If you have a working system, why would you sell it ? Especially to retail traders, who will bang your door with questions with regards to the system. On top of that all those systems will fish for the same liquidity in the market when the system fires trades.. It will fail to work

2. The majority of the vendors provide a part of a possible solution. The majority of those vendors don't know how to trade and make profit or likely not consistent, their business is building a product and market it. This does not mean that those products are all worthless, but they are for sure not the silver bullet. Retail traders should stop hunting for a system that will make their trading profitable, with just spending a few $'s

3. Trading is more than a software, system or solution. Trading is understanding the market you are trading, is building your own style you feel comfortable with and having a period of comfort, so that you can enter a trade with confidence. Trading is discipline and routine (actually very boring). Trading is psychology.

4. Having watched many combine players here online, even if you had a working system, it could still fail the combine. I think you would have to tweak any system for it to pass the combine. a max draw-down from 150K account of 4.5K does not give any algorithm a lot of room. We are talking about 3% draw-down max from the high of the account. I think you would end up building a special combine system.

So a vendor showing you a horrible combine might have a good tool if you put it in the hands of a person knowing to trade.
A vendor with a bad tool but with excellent trading skills, psychology and money management may be able to pass the combine.


Bottom line, the initial question starts of from a wrong assumption:

good trading result = a good system thus a good system = good trading

This is not correct.

This all said, it would be fun to follow the vendors going through this exercise.
From history we know there won't be a lot of appetite.

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 xplorer 
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I agree with Ron on this.

The Combine has lots of rules. Similar rules to a 'trading'/training firm I joined years ago. I couldn't trade outside of their hours or their products.

What if I'm successful outside of their rules?

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 KhaosTrader 
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Hi, I appreciate the input.

I agree that many vendors dont supply the complete system, fine. But there are many traderooms out there, and people are subscribing to them, and also there are complete system vendors also. I am saying that these guys really need to prove themselves in my opinion. When I posted it I had in mind traderoom vendors -- those are the people whom I think really should do something like this.

The combine rules are a lot more lax than before. the 150k combine rules are not that bad -- much better now than before. Most people who have real money who want to get into a tradroom, probably would quit after a 4500 drawdown right? Would they quit if they lost more than 3k in a day? I mean , if you just made your stop at loss of 500 or making 500 in a given day you would need to lose 9 days in a row or so.

The point is a metric is needed ok. I dont know of any other. And frankly its something. If some one is selling a 3k system or a methodology for futures daytrading with a traderoom I figure he or she should be able to pass a combine.

How else can we Vet these vendors? How many potentially great traders have been ripped off and sold false promises and never will become traders because of bad experiences?

So yah, I dont want to hear excuses. If a vendor who is selling a futures trading system or methodology with a traderoom should be able to do a combine. Pass or not, we can all see the expertise they offer.

I watched Al Brooks latest video, he says he cant show his numbers because of some Federal agency will put him through an audit... Fine, ok maybe I can buy that. But let him prove himself, do a combine, pass it, and we can see if its real or not. I am not trying to single out Al Brooks ok, I just watched the video and Big Mike had a letter that was read in the beginning of the video, and Big Mike has a big heart, he is trying to protect us traders... He put the question right out there to the man .. And Brooks said he couldnt say. Man that was disappointing! The only solution i can think of is a combine.

Al, if you could do a combine and show the world what you can do that would be great. I just want to see a vendor show his results in a disciplined and controlled environment. I dont think its too much to ask.

Just my humble opinion here...

KhaosTrader

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 KhaosTrader 
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xplorer View Post
I agree with Ron on this.

The Combine has lots of rules. Similar rules to a 'trading'/training firm I joined years ago. I couldn't trade outside of their hours or their products.

What if I'm successful outside of their rules?

Topstep has pretty liberal hours, you can trade pretty much anytime except for the Ags. You just need to close your positions at the end of the day for an hour. So if you trade the Asian or European session, you are fine. The first leg of the combine they dont care if you trade through news events, on the Traders prep they want you to wait a minute or two after the news event to get into a position...

Its really not a big deal these days, TopStep loosened there rules a lot. There is no time limit to passing a combine. Just dont have the 4.5k max draw or 3k loss in a given day, get to 9k profit and your golden. If it takes 2 weeks fine, if it takes 3 months fine.

You cant trade Eurex, most traderooms trade NQ, ES, CL, currency futures, and Bonds. You can trade all those.

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 Tymbeline 
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Many very successful trading methods, systems and styles are totally unsuited to the restrictions and regulations of TST's Combine structure. (I believe Big Mike himself has commented previously that he wouldn't be able to apply his own methods to a Combine.)

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 bobwest 
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@Big Mike posted the most amazing series of results I have ever seen in his personal journal and in the old spoos thread. It included, at least much of the time, real-time trade posts (as the trade was being done), detailed summaries and broker statements. He cleaned up. His stated intent was, in part, to show traders that there is another way besides short-term trading.

He is generally supportive of TST, but has said often that he could not pass a Combine. Why? His trading style involves scaling in to losing positions, longer holds (sometimes overnight), and often over-running the loss limits. Like some other traders on FIO, he can do well trading his way in real life, but could never fit into the TST structure.

So one thing to understand is that the Combine is not a test that is for everybody. Many profitable approaches to trading cannot be expected to work on it. (I imagine everyone knows that I like the Combine, but that's just for me. It may be very wrong for someone else.)

Just my thought on this. I wish we could know who is selling something good and who is not, but I think it is not going to be as simple as this.

Bob.

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 tpredictor 
North Carolina
 
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As pointed out, many pro traders could not pass the combine rules. At the least, they ought to be able to offer better than retail trade rates. Even if you win, you will pay professional datafeed charges. If you just trade 2 instruments like ES and CL then that's $200 per month and more if you trade more instruments. In just 3 months, you're looking at appx 30% of your funding level being spent in fees at the 2k level.

Second, I think one must be cautious in seeking proof because even a real money track record doesn't prove anything. I'm slightly reluctant to point this out because track records, real or simulated, are tools that a lot of honest traders, like myself, have used in the past and/or hope to use the in the future to achieve funding and demonstrate their ability. From watching vendors long enough, I will also share what I think about vendors at the end.

First, I want to point what I'm showing is hypothetical. I've no information that this has ever happened!

But, let me show you a hypothetical of how it could work. Imagine there is a big trading competition where winning it will lead to lots of opportunity for self-promotion and rewards that far exceed the risk capital. Most big time promoters get big because they are willing to spend a lot on advertising. So, I just want to point out that there's a certain investment required to become a big time promoter and that's going to be sunk cost whether you spend 10k to talk at a tradeshow or throw away 10k in a trading competition or take the risk put on a 2k risk in front of an audience. It's all marketing costs. Okay, so a trading vendor decides to enter 5 systems into the contest. Okay, so he stacked the odds in his favor but he's risking 50k and so he must at least believe in his abilities. But, what you don't know is that he has 5 systems running on another account which take the opposite of the trades, in effect hedging the system. You might decry but the wash rule prevents that. Maybe he doesn't hedge them perfectly. He let's the trades take some heat. So, he could just claim he runs a lot of systems and sure some systems will hedge themselves out. If you still think the wash rule might apply then all he has to do is trade a correlated instrument or hedge with an index or option. At the end of the competition 4 of his systems blew out and 1 won, he gets all the rewards of winning the competition. In reality, in his shadow accounts all positions were hedged and he ended up losing maybe a few thousand bucks from the non perfect hedges. He stands to reap millions in book endorsements, trading system sales, etc. Notice, I'm not claiming anyone has did this: I'm just showing that it is technically possible.

This is hypothetical. What about a prop firm that blows really hard about how they have 7 figure traders? You can't make stuff like that up. Well, let's imagine they have an educational arm that produces 10 million per year. The owners of this firm take 1 million for themselves and put back 9 million into the prop firm. They have a lot of resources obviously to find and fund the very best traders only. Even still maybe the firm as a whole loses 9 million but they end up producing a couple traders who do make a million. As a whole, let's just say the firm breaks even or loses a little. Did they really produce a 7 figure trader? Sure. But if you knew they lost 9 million to produce 3 traders who made a million, does it demonstrate they know or have figured out the markets? Maybe those 3 traders had their own methods when they came in. We don't know. You might want to know why would they do this: because the huge promotional value to sell lots of stuff. Also, maybe it's not that bad. Maybe the prop firm makes money too. Yet, the reality is most props trade at rates that would lose money if they were trading at retail rates. So, let's just reiterate: if they had to trade at the rates you trade at they'd be consistent losers and yet they claim they can teach you how to make money, how? Good question.

Okay, what about the independent trader who shows a 1 day winning trade of 100k. He must know how to trade, yes? A big account statement must reveal something, yes? You would think. But, for some people 50k, 100k, even 1 million dollars is play money. Just because you don't know people that rich doesn't mean they don't exist. If you had 500k in play money could you trade well? Could you double it? Would it matter if you were down 90%? Even if you couldn't, could you produce a 50k winning day. Sure you could. Also, keep in mind the promotional opportunity to pull in possibly upwards of a million dollars for that winning day. Also, if you had a lot of days like that why wouldn't share your entire year history? Why only share a day? Keep in mind even if a trader had a 30k winning day on a 500k account ( 6 figures) then the yield is only 6%! That's only a 6% winning day. A 2% risk limit per day would give the trader a 10k daily loss limit. That's a return of 3x the loss limit. Solid trading sure but ask yourself, can you trade for a living if your best winning day is a 6% return?

Now what about vendors? From my experience just watching vendors; they tend fall into a few classes:

Serious traders who for whatever reason haven't made it: This is the majority of honest vendors. They are still significantly better than the average retail trader because they are building own tools, doing own research, etc. Even so, most don't trade for a living because they don't have the capital, psychology, connections/network, etc. These are typically the smallest, least well-known vendors because they don't promote. Often, they will have or be trying to produce track records to get funding.

Creative/Developers: Some vendors just like building stuff. A lot of what they build is really nice, actually.

Scammers: Most of their claims won't appeal to a real trader anyway. So, they are not really even targeting the futures.io audience, imho.

Marketeers: These vendors are the easiest to recognize because they have the best sales pitches. They are professional promoters and work on their sales craft. They could sell anything but like to sell trading stuff. Easy to recognize because they are found at the tradeshows or producing slick videos. Some may be able to trade, even. These vendors are the most difficult to ascertain capabilities of-- you'll never know.

Professionals: Probably trade for a living or did in the past but probably couldn't trade for a living if they had your capital, trade rates, etc.
---

I think a good lesson is stay positive. You can either assume everything in the worst light or the best light. Take what you can from vendors. There's a lot of vendors over the years I was able to take some value from even though I personally felt they couldn't trade. There are a lot of good ideas out there. You have to put things in perspective too. There's a big difference in a vendor charging a fair price for a tool versus a vendor charging several thousands for a mentorship or whatever. In the former, I wouldn't even care if they could pass a combine. And, if a vendor is charging 6k, 10k, or even more for a mentorship then you better believe I'm going to want a lot more evidence that they can trade and that it is relevant for me than passing a TST combine. That's just my 2 cents. Feel free to disagree. I might disagree with myself even! I like to question everything.

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 KhaosTrader 
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A lot of valid responses here. I can see the logic that you guys are presenting... Its a shame that the idea probably wont fit most cases... But it was just an idea. Perhaps some vendor can work within the scope of the combine rules and prove themselves, that would be great. Even if only 1 in 10 vendors had a system that would work in the metrics of a combine, some vendor should stand up to the challenge...

This forum is very good, I must say, I am glad to see such passion in responses and deep thought.

Thank you all for your responses...

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 forgiven 
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but could some one tell why they would join the combine...after you jump through all of the hoops..they do not put that much at risk..you get a 30,000 account but your booted with a 1500 draw down... then they get 30% plus com. and you pay your own data.. it would take 100 years to trade the size to live on... if you are going to play trader why not trade in sim..why give them 200 a month,

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 tpredictor 
North Carolina
 
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Right the account sizes don't mean anything. They should just get rid of that and show the contracts and leverage. Good question. The 30k is very small but does have the best risk/reward metrics for the trader. I think I'd go for the 50k if I did it--not 100% sure though. The only good reasons I can think to join the combine would be:

1. You have already demonstrated on a simulator you can meet the goals. I would never take a combine unless I had at least 2 weeks data showing I could beat it. So, anyone thinking of doing a combine should do 2 weeks on the simulator first.
2. You are a discretionary trader and feel like you can trade better without having own money at risk.
3. You want to trade very risky or unfamiliar products.
4. For the benefits of self-promotion, to prove you can do it.
5. They do offer ability to trade more contracts but you'll need to be a heck-of-a-trader to do it.
6. Fast money. If you were very confident you could win, just do the combine, take the 5k and go out on own.

The reason most people give for doing a combine is to make themselves accountable or something like that. I really don't think that is a good reason. If TST raised the risk capital to some significant portion of 25k with a 2k daily loss limit: I would strongly consider. But as is, it's tough to justify. They should offer pass-thru member exchange fees and up the risk then it would make more sense.

The typical reason you want to go to a prop firm is because there is unlimited scaling potential. The OneUp trader does claim to have a scaling plan which makes more sense. On the other hand, TST does give unlimited time to beat it so it's not as bad as it used to be.

The real potential for a day trader is a combination of daily loss limit, their skill, and the markets. If all the stars aligned it would be possible to start with 2k and end up with 8k at the end of 1 month. That's 20% return per day on risk and is theoretically possible. If you think for example, you can day trade with 2% risk per day on a 100k account and you have a great start-- certainly possible. Do that for 3-6 months and you'd have a decent account--assuming you don't need any of that to live on.
---

But back to topic, one thing to consider also is how good a fit a method is for you.

It is like a drug. Most people think a drug works or doesn't work. Reality is most drugs, that are approved, work for some portion or percentage of the population. So, even if a vendor has a method that's viable, reality is that it's probably only able to work for say 25% to 50% of the people who try it. There are reasons behind this that aren't obvious but that do exist (i.e. implicit learning ability).

Reality is most people who try to learn anything are "dabblers". They want to do it but not bad enough to master it. A lot of people try out BJJ, like I did, for the fun: reality is most will never become a black belt and that's perfectly okay. And, reality is also even if you spend $100 per hour for 1-1 with a black belt, it won't make you a black belt.

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 forgiven 
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there there for lack of any thing better to do,, they are not sure if they can trade so they can take a test run...dealing with them and all the rules would have to be painful. like touching a hot stove would you not learn more quickly ..with your own money ..i did..

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