As many systems have busted this week, it is expected that many of these guys will be back. I’ve mentioned this before as a way to filter out systems. This could have saved huge amounts of money to those that took this advice. I’ll mention it again. These guys may come back but they won’t be able to build a clean track record. If they couldn’t trade properly the first time, they’re not just going to pick it up overnight.
Look at results. Not just winners but all trades. Next to results there’s a column for drawdown. Look at every single trade INCLUDING winners. Any system that has a trade that has a 5% DD should be a no. Any system that has a DD of over 10% should be an automatic no. This simple exercise will save you huge. It’ll also only take you two minutes. Most of the systems that went bust this week had DD of 10% or more on one trade in the past. If a guy is taking a 10% haircut on one single trade, he’s not trading properly.
Some took my advice and saved $50,000 or whatever crazy amount these guys lost. This isn’t the first time I mentioned this. I’ve been saying this for two months.
These guys can come back but what they can’t do is trade. They’re not going to be able to show clean trades. Maybe a few lucky trades but eventually the record will tell the truth. Either they’ll use a stop and have a terrible record or swing for the fence to start off with a bang and have large DD per trade.
If they’re new, ask for a coupon or wait for a track record. The reason this is so effective is because most of these guys that went bust only cared about showing winners to impress investors. AT ANY COST. This week we found out the cost. If these new systems are really trading properly, they wouldn’t mind offering a coupon to prove they are.
Also make sure the stop they’re using isn’t an “emergency” stop that’s 20 points away when they’re only going for 2 points. That math doesn’t work. Hold these “new” guys accountable. If they’re going for 2 points, make sure the stop is a max 2 points away.
Don’t lose sight of what happened this week. Look at the risk side instead of the profits.
Hopefully more investors take this advice this time around.
I didn’t create this post as a debate about stops. If you don’t agree, you can keep your opinion. This is advice for investors. It’s up to them if they want to take it or not. If someone doesn’t agree with stops that’s fine. I’m not trying to change their mind and they won’t change mine. My view is risk management is absolutely essential in trading.
If these new guys can trade properly with risk management and low DD, I’ll be the first to endorse them as a good system.
If anyone has a question, you can PM me.