I\u2019d like to ask a question:\u00a0 Thinking about casinos, would you rather have the house edge, or would you rather be the gambler??\u00a0 Other than entertainment value, of course, being the house is the only way to consistently make money.<\/p>\n
That\u2019s what system trading is all about\u2014developing a system that has a well defined, consistent edge\u2014called expectation in the trading world.\u00a0 That\u2019s what we are going to explore in this blog, and we will look at real world examples along the way:<\/p>\n
1)\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0Just what is a trading system??\u00a0 Isn\u2019t it just a handful of technical analysis tools??\u00a0 Maybe, but how do you know if your idea will work??<\/p>\n
2)\u00a0\u00a0\u00a0\u00a0\u00a0 Testing is the foundation of all trading systems, and only those with a positive expectation\u2014edge\u2014will make money consistently.<\/p>\n
3)\u00a0\u00a0\u00a0\u00a0\u00a0 A mechanical system really is no different from a discretionary system, it\u2019s just that a mechanical set of rules are written for a computer, whereas a discretionary set of rules is written for people.<\/p>\n
4)\u00a0\u00a0\u00a0\u00a0\u00a0 OK\u2014sounds good, but how do we get started??<\/p>\n
5)\u00a0\u00a0\u00a0\u00a0\u00a0 Hmmm\u2014sounds great\u2014bet I could find a really cool way to use two dozen of my favorite indicators to build a trading system!!\u00a0 Maybe not\u2014simple is usually better.<\/p>\n
6)\u00a0\u00a0\u00a0\u00a0\u00a0 I\u2019ll bet I can produce the perfect entry.\u00a0 Maybe it doesn\u2019t matter\u2014exits could be far more important.<\/p>\n
7)\u00a0\u00a0\u00a0\u00a0\u00a0 My system loses money\u2014bet I can make it profitable using stops.<\/p>\n
8)\u00a0\u00a0\u00a0\u00a0\u00a0 Some of the pitfalls\u2014commissions, slippage, fills, curve fitting\u2014these are the biggies.<\/p>\n
9)\u00a0\u00a0\u00a0\u00a0\u00a0 I\u2019m not a statistician, but there are a few things that really matter\u2014a lot.<\/p>\n
10)\u00a0\u00a0 It\u2019s not all about expectation\u2014better focus on draw downs as well.<\/p>\n
We will look at these ideas and many more over the coming weeks, and please ask plenty of questions, and if they are of general interest, we\u2019ll deal with them in the blog as well.\u00a0 And we will get to know each other along the way, and the way we think\u2014some of us will be trend followers, some like to bet counter trend, and others prefer reversion to the mean.\u00a0 We will look at all these approaches with our eye on the two most critical things\u2014expectation and draw down.<\/p>\n
Our first blog next week will examine the components that turn an idea into a money making system\u2014or not.<\/p>\n","protected":false},"excerpt":{"rendered":"