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Some random thoughts on how I see some new fads in the Markets. So when I was in school in the early 70's, difficult calculations were done using log tables. When I went to IIT in 1974, there was the slide rule.
In the early 80's when I was doing my CA, along came the adding machine and the calculator- which was almost the size of today's laptops and much more expensive. It's only around 1984 that I got my hands on my first computer- an Apple II- 16k RAM and 64K FDD and VisiCalc
The point is that each of these tools represented a quantum leap in technology and enabled one to do the job at hand far more efficiently and quickly. Systems Trading does not fall into this category.
It's been around for a long time and like any other form of Trading has produced a mixed bag of results to its practitioners. It's not anything like the improvement that a calculator provided to someone who was earlier using a slide rule
It's just another form of Trading which works very well for those who practice good Risk Management and follow a disciplined rule based approach- the same traits required in any other form of Trading. Just becoming a Systems Trader will not give you the keys to the Magic Kingdom
Now some thoughts on backtesting. Trading methodologies or systems can be as simple or as complicated as you want to make them. There is no evidence to suggest that your odds of success will be any better with a more complicated system
So, I like to take a morning work at sunrise. I know that depending on the time of the year, the sun rises between 5-7:30AM. That's good enough for me. But a more conscientious fellow might decide no that's not good enough.
He might decide that he needs precisely 8 hours of sleep and want to time his sleep to wake up just 15 min before sunrise. So what does he do? For a whole year, he wakes up at 4:30, goes out with a notebook and jots down the exact time the sun has risen every day of the year
Next year he is in a position to fix his bedtime to within 15 minutes to ensure that he gets his 8 hours and awake 15 min before sunrise. He might also make observations on the temperature and weather conditions so he knows exactly what to wear
He might observe that there is this pretty young thing who comes out 15 minutes later and change his timing and route a little. He may find that she takes her dog along and may decide to buy one to take along and play on her love for dogs and hopefully dog lovers
I've stretched it a bit, but in essence that's as good an analogy as I could think up on backtesting. Me- I just go out for a walk early in the morning and hope to occasionally run into the pretty young thing. All written in good humor and no offense meant to System Traders
