Developing a Trading System: Be Careful and Test!

Here at "A Dash" we have warned individual investors about those TV commercials that invite you to develop your own trading system.  The ads make it seem so easy.

This can be an expensive mistake!  The software is not the problem.  The difficulty arises because the novice system developer takes all of the available data and back fits some trading system.  The approach does not involve any theory, nor does it use a sound research method.

A strong method moves from theory to practice.  It holds out data, not used in system development, for testing.  In the best form, the test might be on data no envisioned by the developer.  This is the method we use when systems are submitted to us, and also for our own TCA-ETF model.

Advice for the Developer

A major problem is that the TV ads all require active trading in order to use the development tools.  This is backwards.  Someone who wants to develop and test a system needs to try some paper trading first.  It is also a good idea to look at what others have done and get some coaching from those who are more experienced.

You need to do this before risking your cash!

A Good Resource

We are delighted to suggest a solution to those embarking on system development.  We recommend a resource where the system trader can test without advance commitment,  There is also a site for easy downloads of free data from various sources.

We do not do this lightly.  We have contracted with the author for advanced testing of some of Vince's models.  It is always a good idea to get outside testing.  The work has been excellent, and we will soon provide updated analysis to interested readers.

We will continue to evaluate and cite good sources for active traders in our new listing, Trading Resources.

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One comment

  • Fred S November 19, 2008  

    I’m just starting to get into system testing and appreciate your links to and yloader. Thanks!