why bother with a 'system'?

Ok help me out here, I have been trying to put together a 'Trading system' for quite a while now... unsuccessfully.

What I don't understand is this... suppose hypothetically,you were to trade nifty near month fut based on a completely random choice.
For example,end of every day flip a coin and decide to either go long or short next day and set the stop-loss at 1% of previous day's close.(i.e if the index closed at 5000,and you were to go long then stop-loss=4995 and viceversa for short ).... and square off the position before end of day.

When I ran this b.s 'system' on eod data from 2007 to 2013,it resulted in net gain of 14,000 point profit over a period of 1870 days,with a hit rate of 15%. On average that's a surprising net(brokerage+slippage of 1.5 point deducted) profit of 7.6 points every day... or a return of approx. 650% p.a on your principal.

Don't most 'trading systems ' do similarly or slightly better? why bother with a system at all?

Good question Pogamoggan. If you are regular at TJ, you would know that back test systems give good results, but fail in reality. Why is it so? Because you are being 'fooled' by your data.

To give you an example (basis your system), you enter Nifty at say at 8,080 at the close of today. Your SL would be at 1% which is 80 points, making your SL to be triggered if Nifty were to trade below 8,000

Now assuming Nifty opens 1.5% down at 7,960 but closes the day at 8,020 in reality, this would trigger a SL at open. But as your system is looking at EOD close, which would show that Nifty at 8,020 no SL is triggered by the system!! Hence the results that you get in the system is distorted and shows better result that actual reality.

If only we could use tweaks of RSI/ADX/EMA's/MACD/BB's setting in Amibroker etc and derive the results in reality as shown in the system, there would be no people working in office, but making a comfortable living trading from home. My 2C.

lol, that's exactly how I feel at this point having spent ridiculous amount of time on TA based systems... but I will probably continue hunting for my fool's gold with data mining.

Thanks for sharing your views on Backtesting ,DSM.

Too many people take the plunge into day trading solely on the basis of backtesting a few dozens of AFL's as if that is all is required for being a successful trader.

Many think they have found a goldmine and want to open an advisory,etc.

There are many requisites of a good trading system other than Technical Analysis/Fast Trading softwares,etc.

Developing a Proper Trading Mindset.

Source:Internet

1)Do one thing and Do it Well.
2)Patience is rewarded.
3)The Best Time for A Trade is When Everyone Else Disagrees.
4)Being Wrong is Not a Bad Thing.
5)Let the Trades Come To You.
6)Create Your Own Trading Style
7)Keep Learning.
8) Everyone Has a Bad Streak

ok . now the next question. why to place a stop loss. ?
once in year nifty make take 5% against to your position. once in a month nifty may take 3% against your position. once in two weeks nifty make take 1.5% against to your postion .
now design your money management and continue with coin flip ?

I had posted earlier about Colm O’shea, a hedge fund manager ranked as no. 21 on the golbal rank of hedge fund managers. (It's in my thread M6 - Post 541 - link is given below) He makes about 40 Mil. USD/Annum, and at one time, managed funds for George Soros, before starting his own fund. Now the surprising thing for me. that he mentioned in his interview with Jack Schwager in the book 'The hedge fund market wizards' that he is wrong atleast 50% of the time!!

Now that is some serious food for thought for any trader. Imagine inspite of being wrong on 5 out of 10 trades, one can be counted among the elite of the global hedge fund industry. How so?

Trading is actually contradictory, with many rules on profit booking, SL, Trailing SL, etc. at times hindering the trader than helping him to grow. For e.g we are told that never let a profitable trade go into a loss. But for a swing or a positional trader taking a hit of 3-5K is par for the course - as he has technicals, momentum, fundamentals, RR of the trade all in his favor, and his target may be 5x or 10x, and so he has to give lee-way for the trade to work out. Not saying here what is right or wrong, as traders have different mindset and psychology. The point I am trying to make here is that a 'trading system' is only one component in the armour of a successful trader. The other is Risk/Money Management, Trading Psychology, and also 'flexibility' to be able to break rules (especially when the technicals and fundamentals are aligned and the trade is going in your favour) So good luck to you with your search. But it will surely help to look at aspects other than 'system' to make it. Wish you the best.

http://www.traderji.com/general-tra...man-mind-money-markets-method-madness-55.html