There are many trading systems and strategies out there. There are
many free ones printed in trading articles, journals, books and on
trading-related websites. You can buy them as software or you can
subscribe to them periodically.
Novice traders say they do not have the time, the aptitude,
the talent nor the brains to work out how to trade properly. They would
rather purchase a program or subscribe to a trading system for hundreds
— or in some cases — thousands of dollars. They say they do not have to
do anything except be told what to buy, when to buy and how much of it
you need to buy. Some ask me if this strategy or approach is advisable
for trading the financial markets. To answer this question, I am then
forced to consider the advantages and disadvantages of using such an
approach to trading.
There are reasons why a trader would use a system or strategy that someone else developed and tested:
1. It is easy. A novice trader does not need to study how the
market works and how he interacts with that market. He does not need to
educate himself: he does not need to bother with books and seminars. He
does not need to test the system, since the seller has already done
that for him and reported promising hypothetical or actual results.
2. A novice trader hopes to get a trading system at a 'bargain' price: sometimes even for free.
Hazards of trading a system or strategy developed and tested by someone else are the following:
1. Faulty Systems
There are many faulty systems out there. They may be faulty
because their assumptions and their mechanisms may no longer be true,
accurate or valid. As a novice trader, how can you distinguish between
the good systems and the bad systems if you don't know how trading
systems are built?
2. Discipline and confidence
All systems have drawdown periods. Some good systems may not
make money for six months or an entire year. Even if it was a good
system, can you continue to follow it even if it gives you a loss after
a loss after a loss? How can you follow it if you do not have
confidence in it? How can you be confident if you do not know the ins
and outs of the system and if you have not tested it yourself?
I do not believe that people would blindly follow a system
even if they were told that it would bring them riches. I can give
someone a trading system, I can supply him with exceptional
hypothetical or actual results and still, he would not be able to
I remember giving my dad a fully-mechanical trading system I
developed. I told him a few simple rules and I told him not to question
them. All he had to do was to follow them. We both traded it for two
months, I grew my small account by roughly 50% (it happened to be a
good two months), but he was losing. He wondered why. I asked to see
his trading records. When I looked at his trading records, I found that
he kept disobeying the rules. When I asked him why he disobeyed them,
he wanted to improve the results after it had a couple of losing
trades. He was trying to improve the results. According to him, the
system asked him to do what he thought was not right during certain
market conditions, so he did not follow it. I found simple errors too,
including opening trades at market price instead of waiting for buy and
sell stop orders at support and resistance levels to get triggered. I
also asked that he executes trades at the close, but oftentimes he
traded two hours before or after the close at his discretion. There
were many more rules he breached. He is a smart man: a former civil
engineer and now a manager for a big organisation. Why could he not
follow instructions? It is simple. He did not know the reasons behind
the rules I had set and so he did not appreciate them. His money was on
the line and after a series of losses, he lost faith in the system
easier than I did because he did not develop and test it himself.
To overcome the hazards above, I see no way except for a
trader to learn how to develop his own trading methodology. This is the
only way a trader can know if a particular system or strategy is good
Once a trader learns how to develop systems and strategies,
he can then be better equipped to test them as well. By this point he
might even find that he is better off using the system he created,
because it becomes increasingly difficult to find another system more
suited to his profit objectives while operating within his risk
tolerance levels. It is likely that once he develops this level of
competence, he will simply acquire other systems only to dissect them,
grab the parts he likes and add them to his own system. To me, the
irony is that for a trader to know which system to purchase, he must
first learn how to create a system. And after knowing how to create a
system, he will no longer have the need to buy one.
In conclusion then, I would have to say that if you are not
inclined to learn how to develop your own trading methodology, then
perhaps you should consider giving your money for someone else to
invest. Give it to someone who is trading a system that he developed
and tested himself because he is more likely to have the confidence and
courage to follow his own set of rules.
About The Author:
Marquez Comelab is the author of the book:
The Part-Time Currency Trader.
It is a guide for men and women interested in trading currencies in the forex
market. Discusses analysis, tools, indicators, trading systems, strategies,
discipline and psychology. See:
http://marquezcomelab.com. His other
articles are also published at
with other helpful articles.