Purchasing Trading Systems

HELP!

Having read a lot of marketing literature re: buying Trading systems and then having read members posts on this site about the merits (or lack of) of buying these systems, can I just assume that they are all a load of b.s. and I should just knuckle down and learn this fascinating game slowly?

What do you mean trading system? System that let you execute trades, keep track of portfolio/risk and position/PnL? Or system that makes reconmendation?

Most trading systems don't work, that's for sure. The reason they don't work is that market conditions change and, if even they once did, they won't after a while. Some are OK, for example, Stealth Forex is a genuine system. I sell an oil trading system that I use myself and update on a daily basis and it does show a profit. However, the most successful users adapt it to suit their own trading style and prevailing conditions. That's the problem - if you expect a trading system to work just by blindly following the rules, you'll almost certainly be disappointed.

People always say, 'why sell a system that makes money' but this is not a sensible argument. You might just as well say, 'why not?' The fact is that having a few hundred or even a thousand people trading the same method is not going to reduce profits and any extra income from system sales is 'money for nothing' once it's produced. It's also an interesting thing to do since trading is a lonely business! That said, most are simply not going to make you a profit but can be a good introduction to trading for the beginner.

£10kLoser said:

People always say, 'why sell a system that makes money' but this is not a sensible argument. You might just as well say, 'why not?' The fact is that having a few hundred or even a thousand people trading the same method is not going to reduce profits...

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Maybe not in the beginning but it depends on what type of system it is, how good the system is and what markets it trades. If, for example, it was a genuinely good scalping system trading the FTSE Futures, then a few hundred people hitting market with even a couple of lots would cause enough slippage to most likely impact the results adversely.

I'm not sure of the technicalities here but surely if more people buy, the market tends to rise and if more sell it tends to fall. That's what moves markets, after all. The only reason they rise is because people are buying and the only reason they fall is because people are selling. OK, it might not be sustainable but if you are talking scalping then you only need a few pips.

I'd appreciate how you figure 'slippage' would send the trade in the opposite direction.

£10kLoser said:

I'm not sure of the technicalities here but surely if more people buy, the market tends to rise and if more sell it tends to fall. That's what moves markets, after all. The only reason they rise is because people are buying and the only reason they fall is because people are selling. OK, it might not be sustainable but if you are talking scalping then you only need a few pips.

I'd appreciate how you figure 'slippage' would send the trade in the opposite direction.

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Hello £10kLoser,

The idea that the market rises when more people buy or that it goes down when there are more sellers, is a common misconception.

Actually, buying and selling is always perfectly balanced.

Markets rise when buyers are more aggressive. e.g. they bid higher and higher in order to get long. At the same time they are taking the demand that is there at lower levels.

Think of it like an auction process and more along the lines of buying and selling PRESSURE.

Now try and imagine this:

Picture Crude Oil at say $36.00 and imagine there are an equal number of buyers and sellers. Now lets imagine that I want to buy. Well someone has to sell to me. So lets say I want to buy 5 lots and there are only 2 lots being offered at $36.00. Well then I pay $36.00 for 2 but I have to pay $36.01 for the remaining 3. And hence the price goes up 1 tick.

Now imagine another scenario. Lets assume you have 5 lots to sell in Oil and you want to sell it at the best price you can get (obviously). Now as you are about to offer it at $36.01 (current price) you get news that the US has invaded Iran. What do you do? I Presumably, you hold your contracts and perhaps offer 1 at $37.00 depending on how fast price is moving and see how easily that is taken and keep 4 back etc offering them higher and higher. What does this mean to the market? It means that if someone wants to get long, they must PAY UP.

This is how the market moves.

So now lets go back to our idea of slippage. Lets say your FTSE scalping system gives the order to you, me and my mate Bob to get long at currence price of 4320. Well, I grab 2 lots from a seller at 4320. But there is only 1 more contract being offered there and Bob wants to do 20 lots as he is a bigger player than us. So he gets 1 at 4320, 6 at 4320.5, 3 more at 4321 and then 8 at 4321.5 and 2 at 4322. You click as quickly as possible and jump in and buy your 4 lots paying 4322.5. You've now paid 5 ticks higher than when the signal came out because although everyone clicked at/around the same time, when the orders were processed, whoever got filled first took the lower supply. This is slippage.

And on a scalping system, 5 ticks could easily be the difference between success and failure.

RE : Trading Systems

devvvy said:

What do you mean trading system? System that let you execute trades, keep track of portfolio/risk and position/PnL? Or system that makes reconmendation?

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Thanks for your reply.

I was thinking of "for sale" systems such as Profit Tader (Guy Cohen) etc.

there really are many type of systems

hello

there really are many types of systems traders use... from Bloomberg/Reuters terminal that supply market data, proprietary or out-of-shelf position keeping/risk management (The Greeks/Delta/Vega/Theta..etc) to black box algo/program trading in investment banks...

of course I'd be suspicious anyone trying to sell an algo/program trading software which promise profit (they wouldnt be selling it if it does)

I think TraderDante and 10k-loser are talking perfect sense, but it is possibly more than a semantic point. Markets actually rise because the power of the buyers is greater than the power of the sellers, and they fall for the opposite reason. In my book Trading for Wealth I talk about this, and I point out the situation in an auction room, which is simply another kind of market. If you are buying a painting perhaps, or a piece of furniture, you will see that the price starts moving up more and more slowly as the buyers become increasingly reluctant to pay more than what they perceive would be a fair price. When the hammer goes down and the trade is executed, there is only one buyer and one seller - but before that moment, the buyers had the power to raise the price above the previous bid. However, any price above the final and closing bid would now attract sellers (physically impossible in the context of the auction room, but you see my reasoning), because that last price was the maximum anyone was prepared to pay. Above this price, even that buyer would now be a seller because he has determined the maximum price he was prepared to pay and this theoretical new price is now above it.

On the different subject of trading systems, I agree totally with 10k-loser (you really should change that name! ): I have a profitable system myself which has generated 4,333 FTSE index points between August and the end of the year, and yes, I am prepared to sell it. Why not? It makes perfect sense. This by the way is not my way of advertising it, or I would have put contact details etc. It is my response. I have frequently seen people put the argument that why should people sell their systems, and I agree that it is nonsense.

I hope with this to have posted something vaguely sensible, as many threads I have seen on this forum seem to disintegrate into a slanging match - which is a waste of time and really doesn't help anybody, which is the whole point of the forum in the first place. Sorry for being rather verbose about that.
WR

Thanks Devvy

It looks like nothing beats hard work!