Frequently Asked Questions
- Which test is better. Historical data testing or real time trading.
- I would like to buy a trading system. How do I know it will work.
- Why should I use Technical Analysis instead of Fundamental Analysis?
- I'm quite good at figuring out the market. Why should I start using a trading system to trade?
- What is a good trading system?
- What's the volume of a trading system?
- Which test is better. Historical data testing or real time trading.
Real time trading has always been considered better than tests run by using historical data. Real time trading fixes a lot of issues with historical data testing, such as slippage and roll-over cost of Futures contracts. On the other hand one has to bear in mind, that today’s real time data, is tomorrow’s historical data. With this I want to point out, that if historical data cannot be used as the market conditions might change, real time trading also becomes none valid as they’re ultimately based on historical data.
- I would like to buy a trading system. How do I know it will work.
Well, there is a catch. You can't. Trading systems are a tricky bunch, as they are highly personal. A trading system that works for one person, might not work for another. What counts is that the trader feels comfortable with the system he’s using and that he trusts it well enough to stick to it for a long duration of time. I don’t believe in systems that work out in couple of months. Most system take a year or longer to proof their quality. A system is calculated and tested with backward historical data and/or real time trading. No matter which testing method is used, The system will never work better than the user. Market conditions can also change, so that the system wont trade as well in some markets, as they used to.
- Why should I use Technical Analysis instead of Fundamental Analysis?
If you want to be able to make a decision based on Fundamental Analysis, you have to have all the facts at the same time as everyone else. In modern society, the amount of information is such that it's impossible to have all the facts at the same time as everyone else. Missing out information could be crucial, a bit like having a mathematical formula were some of the information is missing. It would not give the right answers. Technical Analysis are based on three things, price, volume and open interest. These items are available to everyone at the same time and thus makes it easier to compete. One other reason for using Technical Analysis is that when nobody can know all the information all the time, the market has all the information all the time. This information is included in the price, volume and open interest.
- I'm quite good at figuring out the market. Why should I start using a trading system to trade?
It's possible that you have a strong mental attitude and wont be affected by the market. But trading the markets is a emotional rollercoaster and at one point or another you will be affected by it. Using your insight when trading can work and maybe you'll never need anything else, but that will be more a matter of luck than anything else. By following a trading system a trader blocks out the emotional factor and is not affected by the markets emotions. But one thing has to be kept in mind. Any trader has to feel comfortable with the system he's trading otherwise he will never succede. Not all systems fit all traders. To find out what trading system fits indivdual trader, nobody can tell but the trader himself.
- What is a good trading system?
A good trading system is a system that gives good results on a regular basis. But the problem with trading systems is that it's difficult to make a system that has a high rate of return on a constant basis. Some times the markets trade in a way that makes it difficult to profit and thus a system could show losses. But a trading system that includes all the basic parts and has been tested, should work well. But the system will never be better than the person using it.
- What's the volume of a trading system?
Well technically there is no special size or volume when it comes to a good trading system. A good trading system could easily fit on one page. It's what's inside the system, the facts and the rules that count. A trading system of 300 pages is not 300 times better than a trading system on one page. You just have more text. The value is in the content.
