why would you trade any of these systemst

they all blow up eventually???

There have definately been a lot of blowups lately.

Blame it on global warming.

Not every system blows up eventually, but there is a very high infant death rate among systems less than a year old.

It just seems like expectations are way too high. If a system is rolling along at a 200%+ annual return rate, how can anyone be surprised when it gets hit by a 35%+ drawdown?

A good rule of thumb is to take a CAGR of a system and divide it by 3. That would be a good starting point for estimating what kind of drawdown it will have, at a minimum. If CAGR/3 is more than 100%, the outlook for that system is not good.

Market conditions have changed. Systems that worked well for the last 10 months (ie for low volatility uptrends) have gone into DD.

What is CAGR?

I would say, the direct cause of blowup is overlevervage.

When a system is overlevervaged on a trade,it is more likely to fail to execute stops, because the the loss is too big under the overleverage.The recent blowups were all due to a single trade that failed to trigger stop and let the loss run bigger and bigger.

There were circumstances that in the past certain market patterns dispalyed very high probability, so some systems choose to put big bet on these patterns, when the pattern failed and the big bet run into big loss, system choose to continue trusting that pattern instead of executing stop loss, it is partially because the loss is too big.I believe if that trade was not overleveraged, a stop loss is more likely to be executed.

Why some systems intend to be overleveraged?Because they want to raise performance.Their edge is not high enough to get the performance they hope, so they seek overleverage.

If a system does not have enough edge, whether overleverage or not doesn’t change its fate.

If a system does have enough edge, eliminating overleverage would help this system in the long run, although in the short run performance would not look so brilliant.

On the other hand, if you want to avoid a system that may blowup in the future, check if its trades were overleveraged.

My system got fantastic return while many system blow up recently. LOL.

CAGR = Compound Annual Growth Rate

CAGR/Max Drawdown = MAR Ratio

Basically, the idea is that a system is very good if it can maintain a MAR Ratio (CALMAR, over a three-year period), greater than 3. Outstanding if it can maintain a MAR Ratio greater than 5.

Be very careful with a system posting a more than a 300% annual return. One of two things will, likely, happen:

1) The growth rate will slow, dramatically (meaning the best performance has already come and gone)

2) The system will blow up

Just check the Grid and search for all systems, over a year old, having a Calmar greater than 5, and you’ll see how difficult it is to maintain that performance level. Add the ones with a Calmar greater than 3, and you’ll see all the ones which deserve the most recognition for good performance.

Most of the three-month-old high fliers are disasters waiting to happen. If anything, a vendor should warn potential subscribers to be very careful, if his system has started out with unusually good performance, rather than hype the system up as the greatest thing since sliced bread. Unfortunately, the opposite is more often the case.

There could me many issues why a system “blows” and we don’t know much about how well tested and verified the system was.

I barely started to put results on C2, but I know well from my tests that with the strategy I used on C2 - 1 LONG + 1 SHORT every day - I have a 30% chance to lose money in a given year, and 70% to make around 100%.

I do not think that results are the most important thing, because ultimately chance has a important role.

I think a system should be judged based on how it does on average. Run your system on 100 configurations which your algorithm never ever seen, and check the results. Only then you will get an idea about how good the system is.

The the systems might be blowing up because of a different reason: if the system is successful, and then gets too many (greedy) subscribers then the trades themselves destroy the opportunity for a profit, buy moving the stock too much, or from the bid-ask spread. That means that your subscriber’s greed will destroy the performance of the system.

One solution would to control how much the subscribers trade and another to control the time they trade.

You need to leave room for profit. In my case I know my margin is 0.2 percent, so if I my subscribers do move the stock price 0.1%, this will be a sign I am trading too much.

I agree, most systems on here are over leveraged. But the reason these over leveraged systems have started to under perform recently is that conditions in virtually every market has changed in the last 6 weeks or so (from the prior qe2 "risk on" trade).

nice post

Good points there Jack, especially that vendors should warn potential subscribers if early performance is unusually good.

I don’t think there have been a particularly high number of ‘blow ups’ among systems on the site, but a high number of particularly visible blow ups because those ones have garnered so many followers and then self destructed. Lots of real money being flushed away.

Why aren’t potential subscribers learning from this? Before investing in any new system, review some of the recent disasters (they are not difficult to locate, look for lots of angry reviews!) Then see if there are any common threads that can act as a warning before hopping on the next train to disaster.

I have done this and here is my checklist of a few obvious factors. None are rocket science and all have been mentioned elsewhere (so I wonder why people keep getting caught out?!)

1) Too much hype by the vendor. There are a couple of obvious candidates at the moment. Lack of certainty in predictions of performance is a sign of experience and maturity. The opposite is a sign of, well, the opposite!

2) Too much hype from followers. I am not talking about dodgy reviews, just those that are very excited. If people are very excited following a system, that system could quite possibly be setting up for a collapse. The ideal system is where you have trust that the developer manages risk in an effective manner i.e. is pretty unexciting. This should be about making money. If followers want excitement, take up sky diving!

3) Lack of experience of the developer. An example here would be for instance seeing the word ‘riskless’ in a description.

4) Too much leverage. This is an absolute killer. If you see an account of 30,000 trading 5 eMinis, there is a very high likelihood of a blow up. Leverage is a rocket tied to the back of your car. It makes it go really fast but there isn’t much left when it crashes…

5) Equity curves that are too smooth, drawdowns that are too small (my pet hates!). Yes we all want low drawdowns and beautiful smooth equity curves, but the don’t exist. Be realistic in your expectations. All systems have drawdowns but look at it this way - would you rather see them in the performance graph before you follow a system or when you are following it. Think about it…



Then, there is no good systems. Adding too many criteria will turn out no results.

No good systems if you filter ‘all’ those factors? i.e. an inexperienced developer, too much hype, too much leverage and an implausible equity curve. In my opinion filtering the above is not too much to ask for!

A lot of subscribers are getting the wrong answers (i.e. they are losing money) for the very reason that they are not asking themselves these simple questions before investing.[LINKSYSTEM_56316039]