exp system

[exp]

Well, I have read about the Turtle Trading System:
http://www.originalturtles.org/system.htm
and I have completely changed my mind on how top traders can achieve 100%+ a year gains, year after year.

In my opinion, the ONLY way to achieve such gains for several years running is to have a well-defined SYSTEM. Luck/chance plays absolutely no role.

The system does not have to be written down or programmed but it has to be developed to the point where trading decisions are predominantly automatic. If trading decisions are not sufficiently automatic, i.e. the trader has to "guess" in too many cases what to do, then the results will be mediocre.

The "secret" is to have a set of rules that, based on experience or backtesting, result in successful trades in a high percentage of cases. Such rules will be based on some form of t/a, typically using real-time charts.

In addition, the system trading rules are often not the most difficult part of a system. Two more aspects of a system appear more difficult than that. The first one is money management, i.e. position-sizing. The second one is the emotional discipline to stick to the system.

Money management is undoubtedly crucial since probabilistically there is always a nonzero chance of any system failing for an extended period of time (theory of runs) so that one has to have a method to deal with this possibility.

Emotional discipline to stick to system rules can only be developed if the trader has confidence in the system. This confidence must come from either past system performance or extensive backtesting.

The system should be simple enough to be effective which really means that losses will periodically occur. Overfitting or trying to avoid losses at all costs is not the right approach. Interestingly, the Turtle System will produce losing trades most of the time, and in many cases initial substantial profits will turn into losses. Yet, the relatively few large gains in the Turtle System easily make up for this.

In my opinion, the ultimate test of a successful system is whether it can be effectively taught to other individuals who perhaps are not even traders. That was possible with the Turtle System which means that this system was sufficiently simple and robust to perform very well when used by complete novices (highly intelligent though).

These observations are the result of my continuous attempts to conceptualize most clearly the requisite elements of a very successful trading system. Very few individuals in the world have succeeded in developing extremely successful trading systems despite literally millions of traders attempting just that. Nevertheless, just like for George Soros, Dennis Richard, Ed Seykota, and many other famous traders, for me personally this is both a worthwhile and rewarding challenge and a fascinating intellectual pursuit.