Trading Resumed and Why I Never Achieve Hypothetical Trading Returns

I secretly resumed trading Best Market Chances and Have Fun as they have again proven resilience. If I had stuck with these two systems all last year despite heart stopping drawdown period my investment of $50,000 could have grown by $70,000. Instead I barely got some gains. I still have not figured how much. When I do, I will sure to publish.

Following are the main factors of such huge discrepancy

1) Fear. Whenever trading system does something you don't expect you think its broke. Statistically there is much higher likelihood that the system is broke then a simple drawdown. So you pull the plug.

2) Technology. Routing trading system through my computer at home was a big mistake. Lots of lost orders due to multiple hardware, software and communications issues. Now I use OpenECry, the broker which receives orders directly from Collective2 web site. No problems yet.

3) Money Management. Using Have Fun I could be trading two or three contracts and still have the same volatility as Best Market Chances. Instead I succumbed to fear and traded one.

4) I did correctly killed two systems before they took me down. More fear!

Another issue that I worried about was slippage. However, at least with these two systems slippage was not a huge factor. So you can pretty much get close to the performance reported by Collective2.

Ok, now that I fixed the technical issue, my conclusion is that fear is the main culprit responsible for missing gains. But it also responsible for avoiding big loss.

So as everyone else this trader is driven by greed and fear!

Therefore, if I new the system would not break, I would be able to make a sizable gain. However, if I blindly trusted the system I would most likely suffer a sizable loss. So my returns are determined in large factor by my ability to distinguish a system that undergoes a sizable drawdown versus complete break down.

Few words about vendor communications. I like to communicate with the vendor and get an idea of his reasoning. However, most vendors would like to believe that their system is sound even in the overwhelming evidence to the contrary. Many will continue trading and sending signals until the system completely blows up. This is wrong, vendor should pull the plug at some point and save his subscribers from catastrophic losses. Instead some vendors keep assuring subscribers to hang on and point to previous record of accomplishment.

Think about this analogy - you are driving in a car and tracking your progress on the map. You can go slower or faster, but you pretty much able to plan how long its going to take you somewhere based on your average speed. This what happens when we consider a trading system: if you selected a system at some point in time it was because a particular system did not blow up yet. You can look at the stats and decide that this is the vehicle for you to take you into the future. You figure, sometimes it will go fast, sometimes slow but on the average it will gain so many $ / month and you will get to your destination.

Let's say there is a detour in the road and you have to backtrack and take a different road. Now the distance to your destination increases. This is similar to your system is going through a drawdown. Hopefully, you will get through the detour and will be back on your way sooner or later. Your system sooner or later will get out of the drawdown. Keep in mind that time to your destination is determined not so much by your average speed before the detour but how big the detour really is. It could delay you by half hour or by 12.

Now consider a tornado in your cars path. It lifts your car and throws it across the two lanes of high way into the ditch and the car is completely totaled. Miraculously you come out of it unscathed! Every, second after that you average speed begins to fall like a rock. A this point using previous statistics simply does not make sense. Same thing goes for a trading system, there could be something about the market that has changed, and the system that worked over some period of time met its demise. It could be a new regulation, it could be a new large trader that entered the market, it could be some other subtle way that markets interact with each other. Staying with it after that point would make as much sense as sitting in a totaled car and waiting for it to get moving again.

Recognizing your situation and making human decision is the main reason why we can not achieve the hypothetical returns shown on Collective2 and other similar web sites.