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How Good is That Trading System?

TradingPub Admin | February 13, 2013

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Special thanks to our friends over at Shark Indicators for the following guest post:

You’re up late one night and then you stumble upon a trading expert with a new fangled system. It sounds good, and they show many shiny graphs evidencing great profit. But you know in the back of your mind that images only show the trade system in their best light. Wouldn’t it be nice to know how good it really is?

With all the noise out there, it’s important to separate the wheat from the chaff. This is easier said than done when everyone’s claiming to have the best way. And it very well may be the best way for them.  But the question you need to be asking is: is it the best way for you? The thing is you’ll never know... unless you test it yourself.

The problem for most is that this discovery process takes a lot of time and effort. As a result it’s just not done.

But if you’re about to commit your hard earned money to a trade system, you’d be remiss if you didn’t do at least as much research in it as did buying your last car. You took the car out for a test drive, you studied its stats, the gas mileage and the horse power. Why not perform the same research on a trade system you’re about to adopt? You owe it to your money, especially since you could very well be committing just as much capital to this candidate system.

As we covered before, trade systems are only as good as the trader behind the wheel. What about the characteristics of the system, will they suit you as a trader? What is its profit factor? What kind of drawdowns does it incur and can you survive those drawdowns financially and psychologically? Does the personality of the system suit your risk profile? What kind of capitalization is required to trade the system?

The most efficient way to get these answers is to model the system and backtest it. Using a visual modeler like BloodHound, you can model a system from scratch in a few minutes, and at a click of a button discover the all those factors.

In the video below, we show you how to satisfy your curiosity about a system you may find on someone’s site, build it and test it using BloodHound.