Day Trading: How To Choose A Good Trading System
In a previous article we discussed whether or not it was a good idea to design your own trading system or purchase a system offered by a vendor
. Judging from the feedback I have received, I think most people were in agreement that purchasing an existing system was probably the best choice. I can't say I disagree with this assessment, as designing your own system takes a tremendous amount of time and you would need to amass a considerable amount of knowledge before you could design a system on your own.So now we arrive at the next logical question, which is, which trading system is best to buy? From the onset, let me explain that I will not be recommending a specific trading system for you to purchase, but will recommend some specific characteristics of systems that are successful. There are several good systems out there, and a load of systems which I consider inferior and a waste of money. (Yes, I am fairly opinionated about what a good system should consist of)
First and foremost, avoid any system that promises to make you a millionaire in the first year, or the second year, or any year. As I have said in past articles, trading is not a get-rich-quick proposition. This is not to say that many people who trade do not become millionaires, many do. However, your ability to generate income is directly related to the level of work, dedication, and study you are willing to devote to your trading endeavor. Without a tremendous amount of dedication you are unlikely to make $1 million, or hundred thousand dollars, or even $10. I think this must be understood from the onset. This is not a business that rewards slackers, dullards, or laziness. If you fall into any of these categories, trading is not for you.
I would also avoid any trading system that promises exorbitant rates of return. I was just perusing some advertisements for e-mini trading systems and found several that promised 2000% per year. Wow! That's a pretty bold promise, and it's also an out and out lie. It's also against SEC regulations to make such a claim unless you have a large group of traders who have accomplish this goal. Experience tells me that no such group of traders exists. If they did, Goldman Sachs would be snapping them up as fast as possible. So avoid any program that promises exorbitant rates of return.
Finally, avoid any program that claims they have discovered a new secret to investing or trading. There are no secrets in trading. I wish there were, and I would discover the new secret. Trading and investing is one of the most highly financed study area in academia and business. To date, no new secrets have been uncovered that have revolutionized the trading industry. There are several reasons for this; the most important reason for the lack of new secrets lies in the random nature of market price action. So there are no new secrets, no revolutionary secrets, and no secrets at all. I wish there were. Of course, if there were a new secret that I discovered, I most certainly wouldn't be telling anybody about it or offering it for sale. A new secrets would make me the richest man in the world. So much for secrets.
I would seek out trading systems that come recommended by third-party sources that have extensive experience with the system you are examining. You can find numerous chat boards that discuss trading systems at length. Of course, you will find many negative comments about all sorts of trading systems by individuals who either lack the ability to trade, or did not properly implement the tenants of a given system. But there will be recommendations amongst all the negativity that should stand out. I would pay close attention to those positive recommendations and the rationale behind the recommendation.
I would also request a copy of the trading system. I will warn you that most vendors will not send you a completely functional version of their trading system. That would not make sense because if you had a functional copy of their trading system you would have no reason to purchase the product. What you may get though is a toned down version of the system with limited functionality. You should get a pretty good idea as to how the system functions with this toned down version.
And finally, when you evaluate a system, ask yourself does this system function in a way that makes sense? I realize that this is a difficult question to answer, but a good system should work within the parameters of current trading methodology thought. If the system you are evaluating is based upon astrology, I would probably avoid the system as there is a very vague relationship, if there is a relationship at all, between the position of the stars and the functioning of the stock market. I think you get my point here.
In summary, it is important to look at a system that does not make exorbitant claims about its ability to generate profits. I think the system should function within the current parameters of modern trading methodology. I think the system should feel comfortable to you when you give it a test ride. Be a cautious consumer, and don't be in a hurry. Evaluate your options carefully and choose wisely.
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