Dynamic Traders Education - The Trading System Myth - Page 1

The Trading System Myth

Copyright 1997, Robert C. Miner, Dynamic Traders Group, Inc.

The myth that a so-called mechanical trading or investing “system”

may be purchased that will provide consistent and significant profits over
time is a sad reminder that a significant portion of the population has more
money than brainpower or at least some money and an occasional lapse of
brainpower. What is a “mechanical trading system?” It is a specific and
objective set of rules that signal when to buy and sell. The rules may be
programmed into software or simply written down. The basis of all these
systems is that the user does not have to know anything about the market
or trading and investing and will profit by simply following the rules or
system signals.
As long as there has been trading and investing, there have been
trading and investing systems sold to the public for anywhere from a few
hundred dollars to many thousands. I don’t believe there has ever been a
system sold to the public that the purchaser has profited from over a
period of more than a few months. The relatively brief period of
profitability always seems to be followed by consistent losses that wipe
out any accumulated profit in a short amount of time. Many “systems”
sold are nothing but scams. Some probably have value in the hands of the
developer who knows the market conditions under which the system was
developed and would recognize when the conditions have changed and the
system is no longer applicable.
Not long ago, I challenged all of the readers of the Club 3000
newsletter to provide any evidence of ever having had a single, profitable
year from taking every signal of a system that they had purchased. The
Club 3000 newsletter was originally begun to provide comments and
reviews by system purchasers. I am sure just about every system purchaser
and developer in the trading and investing universe subscribes to this
newsletter. Not a signal system purchaser or developer was able to provide
any evidence of having had a profitable year trading a purchased system!
Surprised? I’m not.
Success Can’t Be Purchased
Why does the trading system illusion continue? I believe there are two
reasons. The first is the attitude about the business of trading. Most people
who are attracted to trading have had success in another job, career,
business or profession. They are smart people who have taken years to
develop the skills and experience to be successful in one line of work.
They feel they master just about any kind of job or challenge. They’re
right. They can. If they take the same time to study, learn and gain

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experience with the new business of trading as they took to learn how to
succeed in their former business.
Unfortunately, the new and inexperienced trader often considers that
trading is a relatively simple matter of learning a few chart patterns and
identifying some mathematical formula that will consistently predict the
future market behavior. They completely ignore their own personal
experience that made them a success in their own job, business or
profession. They ignore that it took them a great amount of education and
experience to be successful. Their former success did not come easily and
did not come cheaply. Why is it that so many believe successful trading
will come quickly and cheaply?
There Is No Easy Way. But Some Are Easier Than Others.
It is probably because many of us want to believe that there really is an
easy way. Many of us want to believe that there really is a formula that
can be purchased or discovered and will guarantee success. Whole
industries are built on this illusion. Stay up late at night and channel surf
and you will see how alive and well is this illusion. Almost the entire
trading industry is built upon the myth that you don’t have to know what
you are doing to be successful. From data vendors to book sellers to
workshop promoters to system software sellers the message, real or
implied, is trading is easy and big profits will be made in a matter of
weeks or months. They try to convince you with a few tools and a little
knowledge you will make hundreds of percent profit per year, even per
month! They try to convince you that the business of trading is different
from every other business. That it is easy to learn and easy to be
successful. Shame on them! They know better and should deal honestly
with their customers.
The vast majority of vendors and promoters who create and sell
trading products and services have never had a successful trading
experience. In other words, they have absolutely no idea what product,
service, information or knowledge is necessary to become a successful
trader. But they do know what sells. They know what the public wants to
buy into. They know what are their hopes and dreams and aspirations.
They know that the buying public will pay big bucks to buy success. At
the same time they know that success cannot be sold, and they can’t really
deliver on their outrageous promises.
This is not to say they many of the trading products and services sold
to the public are not valuable to traders. If we required every educator to
be the best at what they taught, our educational system, particularly at the
university and college level, would disappear overnight. The shame of the
large portion of the trading industry who sell products and services to the
public is that they continue to sell the false illusion that their products and

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services will do what they know cannot be done. They cannot sell success.
They can only sell the education that helps someone to gain the knowledge
and provide the tools for a trader to make an informed, high-probability
trading decision. They cannot sell success.
System Testing Software Promotion Perpetuates The Myth
I believe the second reason for the perpetuation of the successful system
trading illusion is the relatively recent plethora of system testing software.
With the advent of the popularity and wide spread use of the personal
computer in the late 80’s to early 90’s, the trading software industry
exploded. The majority of trading software sold is primarily for system
developing and testing. The promotional activity of the system software
vendors has convinced the inexperienced trading public that not only can a
consistently successful and profitable trading system be developed, but it
is the only way to be successful. Shame on them again. They know better.
At least they do if they have ever had any contact with experienced
professional traders.
The left-brain junkies have a field day with the system testing
software. Most of these users do not understand that a set of rules may be
developed to show a profit on any set of data! Even data randomly
generated. But wait until you apply those rules to a new set of data
generated under different market conditions. Not only do software
promoters feed on the system illusion by heavily promoting the system
testing routines in their software, but trading magazines continually have
articles on system development written by academics or professional
writers with no actual trading experience.
Beware Testing With Phony Data
Even more mind boggling (to me at least) is that it is constantly promoted
to test trading systems on back-adjusted, continuous data and then make
real-money, real-time trading decisions based on the results of a system
developed with adjusted data. Adjusted, continuous data contracts are
“phony” data, it never occurred in the real world. It can never accurately
represent trades that would have been taken trading a real contract! At
best, testing a trading system or method on back-adjusted data may
provide an indication of a successful approach.
Every trade must then be tested on the actual contract that would have
been traded in order to get any realistic idea of what the actual results of
the trades would be. I challenge you to find a single consistently
successful trader who makes his or her living by making trading decisions
based on the results of a system or approach developed solely from testing
back adjusted data! If you want to make trading decisions based on the
results of testing on adjusted continuous data that never actually occurred,

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be prepared for a swift and rude awakening. Be prepared to have your

trading account decimated.
John Hill, the owner of Futures Truth which tracks the performance of
trading systems offered to the public once said, “Cut the profits in half and
double the maximum drawdown of hypothetical trading system results and
you will have a more realistic idea of how it may perform in real-time
trading.” Trading systems sold to the public never perform even close to
the level of their hypothetical results.
Do Trading System Sellers Have Faith Their Product Will Perform
For You?
Do trading system sellers actually believe their product will benefit you,
the purchaser? There is a sure way to find out. If you ever have a case of
temporary insanity and are considering buying a trading system, ask the
system seller what is their guarantee. If they have anything less than an
unconditional money back guarantee you know without question that they
do not believe their product will perform up to the level they claim.
No system purchaser would even consider returning a trading system
that performed up to the expectations of the promotional hype. Who would
ever want to return a system that consistently made money? You probably
cannot find a single system seller that offers an unconditional money back
guarantee. They know the trading system will never perform to the level
of their hypothetical results. They know because the systems sold have
never actually performed in real-time trading, only in the manipulated
world of hypothetical system testing where a system can easily be
optimized to show profits on any randomly generated historical data.
All legitimate, well intentioned trading products vendors provide
unconditional money back guarantees for their products or provide a low
cost trial period. The legitimate vendors are like all other legitimate
businesses that sell a product they have pride and confidence in. They will
be happy to take the product back and refund the purchase price to an
unsatisfied customer. They know the long term success of every business
is built on the satisfaction of repeat customers.
Success can’t be purchased. It must be earned. Trading and investing
are the same as any other business. You must gain a certain amount of
knowledge and make decisions. Judgment will always be required for
success.
The Real-Time Track Record of System Traders
Still interested in system trading? The best way to get a realistic, objective
view of the value of system trading is to observe the actual trading results
of systems traders. How do we do that when the system sellers will only
provide “hypothetical” results and we can’t find a single system purchaser
who has been successful?

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Futures Magazine tracks the results of most of the public futures

trading funds. Public trading funds are almost all system traders. They are
usually required in their disclosure documents to follow a specific system.
For practical purposes, they have unlimited financial, computer and brain
power resources to develop trading systems. In 1995, the S&P was up
35% for the year. In 1995, the average gain of the 205 funds tracked by
Futures magazine was just 12.11%. The average futures trading fund had a
little more than 1/3 of the gain of the S&P for the year. If you had bought
and held an Index Fund for the year, you would have had almost a 300%
greater gain than the average futures fund for 1995.
In 1995, about one quarter of the funds were down for the year. Only
nineteen or less than one out of ten funds beat a buy and hold strategy for
the S&P for the year. Futures magazine does not report on multi-year
returns for these funds, but I will give very high odds that none of them
has ever beaten the S&P in each of three years in a row. These
organizations with unlimited resources to develop a consistently profitable
trading system are unable to succeed. Each year the results have been
similar to those in 1995. If you believe you can develop a consistently
profitable trading system with your system testing software that cost a few
hundred dollars are you dealing with reality?
Most of these public trading funds have more than ten million dollars
under management. Some a lot more. All together they represent several
billions of trading dollars. And this is just a drop in the bucket compared
with the private trading funds. How much do you think it would be worth
to any one of these funds to purchase a system that is profitable? Can you
count that high? Given this information, do you really think that you can
buy a profitable trading system for a few hundred dollars? For a few
thousand dollars? A consistently profitable trading system could easily be
leased to a trading fund for tens of thousands of dollars each month. Who
is really going to sell one to the public for a few hundred or even a few
thousand dollars?
Trading Success May Have Declined With The Advent Of Computers
It’s a well known fact that somewhere between 70% and 90% of new
traders go bust or quit the trading business within 6-12 months of their
first trade. You would think the failure rate would be much less in recent
years with the availability of personal computers with immense computing
power and system development software cheaply and easily available. Are
more traders successful today than a decade or more earlier before
computers and software were available? No! In my informal talks with
brokers, not only is the failure rate as high or higher than in the pre-
personal computer era, but the average time that new traders go bust is
probably less now than before computers and system development

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software! Good grief. We’re taking a step backward and its costing us a
whole lot more for all of these computers, system workshops, books and
software at the same time.
It doesn’t matter how sophisticated or complex or technologically
advanced the tools we use. They often provide a false sense of security.
Without the knowledge and experience, everything else is irrelevant and
can provide no profitable advantage. Computers and software are very
advantageous tools which quickly provide all of the information necessary
to make an informed trading decision. But it is the trader who must know
what information is relevant and how to use the information. It is only the
traders decisions that hold the promise of success.
A Systematic Approach To Trading, Not A Trading System
Successful traders employ a systematic approach to making trading
decisions. They master a single approach to trading and don’t jump from
one approach to another. They plan their business by taking the time to
develop rules and guidelines which must be met before a trade can be
considered. They know their success is based on their ability to make
decisions based on market position and the most appropriate trading
strategies for each situation.
The systematic approach to trading requires education, knowledge and
discipline, the same qualities required of every other successful business.
Do you think buying a MacDonalds franchise which is probably the most
systematized business in the world guarantees that franchise will be a
success? Of course not. The owner must still learn how to conduct the fast
food burger business. In fact, a new franchise owner is required to attend
MacDonalds Hamburger University! What if every trader were required to
learn the basics of successful trading before they were allowed to open a
brokerage account? The success rate of new traders would increase
phenomenally. It is the education, knowledge and experience of the
franchise owner that are the key components to success. MacDonalds
Corporation knows this. So must you.
Deal With Reality, Not Myth and Illusion And Your Success Is
Inevitable
Hopefully you are now well grounded in reality. Success cannot be
purchased. It’s that simple. To be a successful trader you must do what it
takes to be successful in every other business and profession. You must
learn the business and gain the knowledge to make decisions with low-risk
and high-probability outcomes. Take the time to gain the knowledge and
experience necessary to learn the business of trading. Don’t begin your
trading career day-trading the S&P. First prove your trading abilities in a
low volatility market. If you can’t make money trading with daily data in
corn, soybeans, silver or another relatively low volatility market, you

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definitely won’t make money with intraday data in the S&P or bond
markets.
Dynamic Traders Group Is Committed To Your Success
At Dynamic Traders Group we are committed to providing everything
possible for your success. Since 1986, we have provided products,
services, education and advise to new and experienced professional traders
and investors in 13 countries. Like any other successful business, our
success is a result of our customers who have been with us for years.
Many of our customers have been with us for a decade. Our advisory
reports have over an 85% renewal rate which is three to four times the
industry average. Many of our customers over the years have reoriented
their entire approach to trading to our Dynamic Trading approach. Others
find one or more of our methods that ideally complement their existing
trading approach that substantially improves their results.
We are so confident that every trader, new or experienced
professional, will benefit from what we have to offer, that we offer an
unconditional money back guarantee on our Dynamic Trading book and
Dynamic Trading Software and Trading Course. We know they are great,
but it’s only your opinion and your experience that counts. Every week we
provide a free Current Trade Recommendation from the Dynamic Trader
Weekly Report so prospective subscribers can see exactly what we are
doing in our advisory reports, and we offer a short-term three month trial
so you can experience the benefit of our educational and advisory reports
to you at low cost. We know once you experience the unique benefits of
our trade advisory and educational reports, you will become a long-term
subscriber.
For more information on how to become a more successful trader with
Dynamic Traders Group products and services, click here.

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