If you think about trading a system then this lesson is of highest importance to you.
Especially if you are new to trading systems you need to know what to expect when trading a system. System trading can be very rewarding but you need to know how to avoid the pitfalls of system trading if you want to be successful in the long run.
The performance report of our e-mini S&Trading System CoinCollector shows an average profit per trade of $36 over the past 733 trades:
Four weeks ago we achieved excellent results with the CoinCollector: Between March, 14 and March, 21 we realized $963 profits with 17 trades. This yields to an average profit per trade of $57, way above the “expected” average profit of $36 (see below):
When trading a system you have to keein mind that you are working with averages:
If your backtesting shows an average profit per trade of $36 then you can be almost sure that the system will not suddenly jumuto $57 average profit per trade.
In trading we have good weeks and bad weeks. Losses are part of our business. After an extraordinary week there will be a slow week. After a winning streak we will realize a loss.
Looking at the performance of that week a correction was inevitable. And it happened: Tuesday, March 22nd, we realized a loss of $712.50.
Such a loss hurts. You quickly forget all the nice profits of the past week and focus on the loss. You may start questioning your system and think that it stopped working, and so you stotrading. You start looking around for the next system. You don’t give the system a chance to come back to “normal”. You see an extraordinary week like the week from March 14 – 21, 2005 and think that you will continue making profits like this forever.
When reality hits you, you stop believing. But take a look what happened after the loss.
Here’s the performance report of the 2 weeks combined: The “good” week and the “bad” week with the loss of $712.50:
Now take a look at the first graphic with the performance the system promised you.
We are right on target!
The average profit is back to normal, and so is the winning percentage and the profit factor.
Within two weeks the system normalized itself. That’s exactly what we expect from a robust trading system.
Futures Trading Systems –
Morefreearticles:
How do I backtest the right way?
IMO backtesting can be a very powerful tool if used correctly. The problem is that many trader over-use the functions provided by the different backtesting software packages and think more is better. Many so-called system developers try to…A simple stock trading system that’s free
I am often asked by relatively inexperienced traders whether there is a simple method that they can use that is consistently profitable. The answer is yes, and better still, it works in both a day trading timeframe and a swing trading timeframe….Profitable Trading System
After you have found a profitable trading system that youalready back-tested, how can you be sure that this system willproduce the same gains in future. Nobody can predict the future,your system can easily make losses in next years or can be…The Sneaky Way To Managing Losses In Your Forex Trading
One of the cardinal rules of Forex trading is to keep your losses small. With small Forex trading losses, you can outlast those times the market moves against you, and be well positioned for when the trend turns around. The proven method to keeping…‘Fixed Ratio’ Money Management
Money management is the most important and overlooked subject intrading! In my opinion, the best money management system forForex/Futures traders is outlined in great detail in Ryan Jones’book The Trading Game: Playing by the Numbers to…