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Buying Trading Systems

Never Buy Trading SystemsA good trading system usually costs around USD 5.000 and the really profitable ones cost even more. Right?

Wrong.

Whatever you do, never ever pay for trading rules. A professional would never buy trading rules, just as a professional would never sell them. There is a misguided perception especially among the retail hobby traders that if they could just get their hands on those perfect rules, all their problems would be gone and they would be millionaires in no time at all. This is naturally exploited by thousands of crafty entrepreneurs around the world who are happy to help out by selling some MetaStock or TradeStation code for a few thousand bucks.

What you need is knowledge and understanding, not some over priced super secret magic trading rules sold by people who never really traded in a professional environment in the first place. If you are serious about trading, you need to learn how to stand on your own two feet and do your own research. Read other peoples’ research to learn, replicate and verify what they are saying and do your own homework. There is no substitute for hard work and paying five grand for a trading system is likely to do three things for you; lull you into a false sense of safety, cause you painful trading losses and set you back five grand.

Why the Free Trading Rules?

Free Trading RulesBecause trading rules by themselves are, for the most part, of very little value. What is of value is the full understanding and insight. The ability to creatively work with the rules, make them your own and succeed in executing the rules in reality. That part takes experience and you’re pretty much on your own there.

Trend following is not complicated. Profitability does not go up if you add more magic indicators and make up some scientific sounding names for them.  What I want to demonstrate with this site and with my book, is that CTA style cross asset trend following is quite simple in terms of trading rules. The difficulty does not lay with the buy and sell rules and focusing on them will only distract you from the real difficulties. Buying trend following trading rules is simply a waste of time and money. Focus instead on understanding the task at hand, how the diversification and risk plays in, how the strategy behaves during different types of markets and learn to understand the ideas behind. Fantasies about making millions from bought rules off some website will not aid you.

There is already an absolutely massive amount of money in the trend following futures game. Winton alone is in the order of 30 billion dollar and there are many other multi-billion dollar funds and they are all heavily leveraged. The beauty of this particular game is the very high capacity. There really is no downside for me to teach the basics of CTA style trend following since there is no way this would somehow increase the number of traders and volumes enough to make an impact. The big guys know all of this and more already, so what’s the harm in telling a few more?

Almost all cross asset CTA trend followers do the same thing. They use minor variations of the same rules. This is very easy to prove by reverse engineering them, changing a few parameters to the core system presented on this site and you can easily get up to 0.9 correlation with most of them. They use different indicators etc, but the point is that it makes so little difference that they are in essence trading the same system. My book explores this further, showing how to replicate a number of large CTA funds.

For sure there are other trading strategies with very limited capacity where it makes sense to keep the rules secret, but trend following futures is not one of them. Of course no trader would want to give out the exact parameters of his trading system, even if the concept is known. I make my living trading futures for managed accounts and hedge funds and I’m not going to tell you my exact parameters either, not even for my core trend following methods. I wouldn’t want you to predict my trades and mess up my execution, now would I. My parameters are not the secret sauce though and if you take the core system presented here, learn it properly and then adapt it a bit to your own style and taste for risk, you can replicate the performance of most CTA hedge funds. Without paying five grand.

 

One comment

  1. This is so True and so wrong….. One of my systems makes good money on trends of futures, also I sell my systems, but I never sell the secret sauce, but I at least sell a variation of it, it just does not make as much money as my parameters.. I sell because my systems go into draw down, and while I am in draw downs I dont get a paycheck. Selling the systems subsidizes this.

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