Questions to ask before buying a system ...

B

BrooksRimes

Been reading Futures Truth magazine and considering buying or leasing a trading system and what I would want to know beforehand. This would also apply to systems on http://www.collective2.com/ and similar websites.

Below is a list I started. Would be interested in any additions ...

1. When was it released?
2. What updates have there been since the initial release?
3. What are the reasons for the updates?
4. How many traders are trading the system?
5. How many parameters does it have?
6. Do customers receive the source code (i.e. is the system fully disclosed)?
7. What markets does it trade?
8. How long does an average trade last?
9. What is the P/L of an average trade?
10. What is the profit factor of the system?
11. What is avg win/avg loss ratio?
12. What percent of trades are profitable?
13. What amount of slippage and commission were used in the published results?
14. Was the system tested with out of sample data?
15. Are walk forward testing results available?
16. Are in sample and out of sample performance summaries available?
17. Are in sample and out of sample equity charts available?
18. What was the amount and date of the maximum drawdown?
19. How long did the maximum drawdown last?
 
There are two distinct types of systems.

#1. Publishing of a generic trade signal.

Requires that is operate without knowledge of a subscribers positions and can not adjust or provide custom tailored instructions.

#2. Custom Trading System. Any system that calculates or adjusts trade instructions based on subscriber's account information. These systems require the provider to be a registered CTA and provide specific disclosure documents regarding the system.

Collective2 falls under scenario #1.
 
I think an important factor is the size account that is required. Trend following systems for example, to work over time, have to follow numerous markets and often encounter long drawdowns and many successive failed signals. It takes a big account to trade them properly, plus the psychological strength to take the drawdowns.
 
Very good point. Thanks for contributing.

Quote from AAAintheBeltway:

I think an important factor is the size account that is required. Trend following systems for example, to work over time, have to follow numerous markets and often encounter long drawdowns and many successive failed signals. It takes a big account to trade them properly, plus the psychological strength to take the drawdowns.
More...
 
Ask them if anyone is fading the system.

lol:) You are naive, sorry to say that.

If I know when you will be placing a trade I can front-run you. If I can do that to 100 people I can make 100 pips, ticks, or whatever a day or week or whenever. What other reason is there for selling a black-box? If that system really worked they would not sell it.
 
You must log in or register to reply here.
Back
Top