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I am a system vendor and would like to defend the idea that good systems can
be purchased. This response is difficult to do without having it sound like a
commercial message. I'll do my best.
There are good systems for sale and there are bad systems for sale. It would
be an error to assume that all are good or all are bad. It is also very
difficult to tell the difference before you buy one. Remember that the real
cost of a system is not the purchase price but the money that you might lose
trading it.
I have read on this list messages to the effect that you need to see x
thousands of real time trades. This method borders on the rediculous if the
system being evaluated is a long term trend following systems with five or six
trades per market per year. You would have to start worrying about year 3000
compliance if you took that approach. Even if you had thousands of actual
trades you would have very little assurance that trades in the future would be
profitable. The CFTC mandated warning that past performance is no assurance
of future results is absolutely true and there is no way around it. It
doesn't matter whether the trades are actual or hypothetical. To quote Yogi
Berra: "The future ain't what it used to be."
Some sophisticated system testers argue the case for complex out of sample
testing methods. This is a good idea on the surface but it has its
limitations. If the out of sample data is similar to the in sample data the
test will produce good results. If the out of sample data is different than
the in sample results then the test will show poor results. What is the data
sample in the future going to look like? No one knows. Any attempts to infer
too much from historical testing regardless of the methods used is dangerous
and is similar to arguing about how many decimals you should round to on your
WA guesses. (Ask Neal Weintraub for his views of backtesting if you want an
earfull on this topic.)
Using any system is a pure leap of faith in my opiniion. You may be better
off relying on a system designed by someone with practical knowledge and
experience than trying to do it yourself and learning by your mistakes. By
the time you learn enough using that method you may not have any money left.
For a sample of systems that I think are good, go to
http://traderclub.com/
Unfortunately there are no short term S&P systems listed there. Our best
effort on that market to date turned out to be an accidental curve fit and
will never see the light of day. Maybe I should post the code here and see if
anyone can solve the curve fit problem.
Chuck
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