What a fantastic system!.....or is it???

[James]

Elements of a good trading system:

1. Majority non-discretional. Purely discretional systems are subject to trader’s emotions, feelings, moods, market bias and subjective analysis, and as such are more prone to large variances in performance, and a poor Sharpe ratio. Good trading systems will have several non-negotiable non-discretionary guides which direct the trader into a potential trade setup. From here he/she may/may not introduce some element of discretion in taking the trade.

2. Risk/Reward: Should be lower than 1:1, ideally in the 2:1 – 3:1 range. For example, risk 50 pips to gain 100-150 pips and not the other way around.

3. Simultaneous entry of highly correlated pairs: A good system will cautiously enter one or two (different but) correlated pairs, and gradually introduce others if warranted. Wholesale entry into, for example, five correlated pairs, all in the same direction will produce good wins (in pips) when the direction is correct, but large losses when it is wrong.

4. Robust: A good system should be tradeable in trending, consolidating and ranging markets – in periods of high volatility and low. It should not spend months in high drawdowns when the market character changes.

5. Results: Assuming a 1:1 leverage of pip gains, a good system should produce 2-5% per month, with drawdowns also not exceeding this range. If the maximum drawdown is greater than the maximum consecutive gain, then the system is flawed and is likely to cause a serious loss at some stage.

6. Tradeable: The system should suit the temperament and lifestyle of the trader. It’s no good if a natural scalper/daytrader adopts a weekly system. He/she will get bored and soon make silly forced trades. The same holds for the other way around. Remember that there ARE many more important things in life than watching the screen!


I hope this is thought provoking and helpful, and that you can use this to evaluate systems before you risk money…

[ForexWizard]

Originally Posted by James

Elements of a good trading system:

1. Simple entry signal based system (with at least better than 50% succes rate).

2. Risk reward 1:1 (same stop as limit)

3. In currencies ther is little to gain from having more than ONE pair in play at the same time.

4. NO system behaves exactly the same way in ALL markets. Look for a different system (or variation of the same system) for volitile "news" related markets, one for strong trending markets and one for ranging markets. They can be the same system with different interpretations depending on the market situation.

5. Again, any system will have drawdowns and there is no telling when this can happen. The idea is to use a system that has been backtested for at least 6 months (1 year optimum) and gives positive signals 50 percent of the time or better. In my case i set my loss tolerance to 5 or 6 consecutive trades before I pause and look at the market conditions in relation to my system.

6. Any trader with a little discipline can trade ANY tested system. If you aproach it in a simple "if this happens then I do this" manner and stick to it. What I do is to work on a worst case scenario basis. I accept the possibility of it and if it happens then there is less emotion.

These are some of my thoughts. I think that the more we detach emotion and decision making AFTER the trade has been placed the better we will be as traders. Once you pull the trigger it should be on autodrive. Making the decision to pull the trigger should also not deppend on your mood or your pending car and mortgage payment that week. You should spend your time creating good signals and then waiting for the signals to occur. Once the signal occurs the ENTIRE process should be just execution NOT decision.

Just my 2 pennies,
Charles

[socrates]

Originally Posted by ForexWizard

3. In currencies ther is little to gain from having more than ONE pair in play at the same time.
Charles

I fail to see how you make that assumption.

[CockeyedCowboy]

Originally Posted by socrates

I fail to see how you make that assumption.

1. Simple entry signal based system (with at least better than 50% succes rate).

2. Risk reward 1:1 (same stop as limit)

If this is truly your expectations and risk reward out come then it sounds like a flip of a coin in head you win tails I lose . No need trying two currencies as your not going to make a profit from the first one .

The CockeyedCowboy

[ForexWizard]

Dont waste your time disecting my ideas. I just posted what works for me. There are many of you guys turning $200 to $10,000,000 in 6 weeks so my dorky little opinions are of no consequence to the BIG BOYS like you guys.

Remember this is what works for me!

[kamba]

Hi James. It sound like you have that kind of a fantastic system couse you sad "Its works for for you". Can you share it with us. I,m 1year+ forex trader with
a lot info but with no system at all.
Cheers.

[Jamrok]

Does anyone know about Stephen Pierce?
More importantly does anyone know about his seemingly new system:
Profinacci
http://www.profinacci.com/

If you check the site and read how it works, then you'd agree that this system sounds really good (as expected from someone selling a product;))...

It would be more accurate to say that it sounds Too Good To Be True! :eek:

The only reason why i'm interested in it is because i was trying to accomplish the same thing but using so random formulas in Excel (this is before knowing or hearing about this system)... I "analyse" the charts, and tweak my formulas so that i end up with a good "system" or "strategy" (dont know if u ppl would call it that)...

I have been successful consistently (more deep profits and less not so deep losses) for the Eur/Jpy pair, but I lost that formula while changing it to suit other currencies :(.

Well the formula isn't actually gone, but just lost among hundreds of copies of the formula that i created to test other currencies...

eg.
I started out with something like this:

cval	131.66		2	E/J
hi	131.83		LOTS	10
lo	131.53		Spread:	0.04
diff	0.30		PIP Val:	$10.00
Entry	131.59	131.63	pip	P/L
L1	131.89	1	0.30	300.00
L2	132.19	2	0.60	600.00
L3	132.49	3	0.90	900.00
S1	131.49	3	-0.10	-100.00
S2	131.44	2	-0.15	-150.00
S3	131.29	1	-0.30	-300.00

Then that moved to this

cval	131.66		G/J3-1
hi	131.83		LOTS	1
lo	131.53		Spread:	0.1
diff	0.30	0.08	PIP Val:	$9.37
Entry	131.63	131.73	pip	P/L
Limit 1	131.88	0.50	0.15	140.55
Stop 1	131.61	2.50	-0.12	-112.44
Limit 2	132.00	0.90	0.27	252.99
Stop 2	131.53	1.50	-0.20	-187.40
Limit 3	132.26	1.75	0.53	491.93
Stop 3	131.49	1.25	-0.24	-224.88

And then to this:

			G/J3-5
hi	131.83		LOTS	1
lo	131.53		Spread:	0.1
diff	0.30	0.08	PIP Val:	$9.37
Entry 1	131.73	131.83	PIP	P/L
Limit 1	132.03	1.00	0.30	281.10
Stop 1	131.58	1.00	-0.15	-140.55
Entry 2	131.63	131.73	PIP	P/L
Limit 2	131.93	1.00	0.30