Volcano systems

I have become fascinated with what I call "volcano systems". They flare up, perhaps to $160,000, $250,000, or more in a few months. Then they flare down as fast or faster…



Paciencia, YM Euphoria, Whoever that guy is that had the contest with Eu New and someone else (Jon something?) and of course, the Flying Pink Pig…

I have become fascinated with system descriptions. Check out "NEC Supercomputer"…

How true. So using NEC (or Cray, etc.) supercomputer speeds up/automates the process of losing money??

e-mini watch is another volcano

Fortune Cookie is volcano-ing as we speak.

What about the Feng-Shui dude… Zen-Kerma? Bad furniture placement = bad trading!

Paciencia, YM Euphoria, Whoever that guy is that had the contest with Eu New and someone else (Jon something?) and of course, the Flying Pink Pig…

Hmm… Ross are you so boring or it was your bad day? lol

Eu

Interesting subject Ross,

I blew out my account several times in my early trading years. This is what led me to the realization that something had to be found that always worked. The problem with most indicators is that they distort prices, "reality". Something must be found that flows with prices, such as moving averages, only better. Of course even then most traders would still sabotage themselves in some way. Meditation, pumping iron, perfect diet, will put a trader in the best position for succeeding.



PS - I hope I did not just invite a volcano. Better go meditate, have a good night.

Actually, this forum is way too quiet (outside of all the blank chats from "unregistered user" at bottom of page)

Ross,



Genuine question: Has your recent fascination produced any new ideas for recognising (and avoiding) risky systems?



For example, all of the systems mentioned in this forum thread so far, show clear warning signals to me. For info, some of the warning signals I look for are:

- young age

- low APD ratio

- low Sharpe ratio (lowerbound)

- erratic equity curve (related but different to Sharpe)

- no evidence of stop loss in previous trades

- high maximum exposure (ca. max open positions * stop loss)

- high maximum drawdown risk from previous trades

- high maximum realised drawdown % (as stated by C2)

- low profit % / trade at the same time as high size / frequency of trades (commision costs) and high slippage

- low average win amount (related to above)

- average win smaller than average loss

- system vendors have other systems performing poorly

- short average trade length

- win ratio unrealistically high

- realism factor not high enough

- Monte Carlo equity curve shows negative possible returns

- system vendor shows evidence of averaging down

- high correlation to S&P (or downturns after significant economic announcements)



What exactly ‘too high’ or ‘too low’ means is a matter of choice/experience/analysis, but numbers aside are these the right kind of warning flags? Can you think of any I’ve missed, or even a different approach?



thanks,



Charles



Note: I recognise that none of the above will tell you if the system will make a profit and visa versa, some of these criteria won’t tell you for sure that the system is truly risky. I also know that some of these measures are controversial for system vendors. Sorry - as a subscriber it’s all I can find to work with.



For info: in my opinion there are no FOREX systems that avoid all the above criteria; just as no successful trading system can truly be risk free. Therefore I am currently choosing to trade using systems that I deem to have a minimum number of warning flags. We’ll see how I go.

Trend Hunter



USD/CAD Mover

Actually, this forum is way too quiet (outside of all the blank chats from “unregistered user” at bottom of page)

So you decided to use system vendors for your entertainment :wink:

And if you mention me in list of dead systems I’ll entertain you. lol

"

After the burial-parties leave

And the baffled kites have fled;

The wise hyænas come out at eve

To take account of our dead.



How he died and why he died

Troubles them not a whit.

They snout the bushes and stones aside

And dig till they come to it.



They are only resolute they shall eat

That they and their mates may thrive,

And they know that the dead are safer meat

Than the weakest thing alive.



(For a goat may butt, and a worm may sting,

And a child will sometimes stand;

But a poor dead soldier of the King

Can never lift a hand.)



They whoop and halloo and scatter the dirt

Until their tushes white

Take good hold in the army shirt,

And tug the corpse to light,



And the pitiful face is shewn again

For an instant ere they close;

But it is not discovered to living men—

Only to God and to those



Who, being soulless, are free from shame,

Whatever meat they may find.

Nor do they defile the dead man’s name—

That is reserved for his kind.

" ©



Eu

I would assume that holy greatness Ross will pass on your questions and estimations :wink:

Eu

I think his criteria are interesting.



But I use 2 other tests.



1) a good system makes money on both longs and shorts; else, it is likely just following a trend, and worthless.



2) After it crosses my radar screen, I watch it for ANOTHER month "live" before I will subscribe. I want to see its performance continue. One of the biggest problems with C2 systems in my thought, is that when you have 200 (whatever) active systems, that 10 are in the top 5% mostly due to sheer probabilistic luck.



How many times do you hear "I subscribed, but it stopped working when I joined?" Thus, volcano systems or systems that just go limp/random after you start following them. They only had a good equity curve due to being relatively lucky in their picks over time.



That is one reason I am a critic. Vendors who start thumping their chest after a 2 month good equity curve are just kidding themselves. And new traders tend to follow them with their hard earned cash.



If you have a profitable system that meets the above 2, then I get interested. That is also why I gave the APD to C2. It does a fair job of exposing the Hold & Hopes or scalping systems. That was my third criteria. But other stats are also necessary for looking.



In the end, everyone needs to hitch up their own pants, and jump in when they think they are ready.

Prime Time Mini Reload - that was the name…



Q-tips is doing a double volcano. I guess one for each ear.

Fair enough. I’m not in a position to criticize your approach. Everybody has a right for freedom of will. :wink:



Eu

Fair enough. I’m not in a position to criticize your approach. Everybody has a right for freedom of will. :wink:



Eu

as of today, MTO that was fast!!!

Charles,

That’s a pretty comprehensive list I think. I have two criteria to add:

1) Rank the returns on individual trades from high to low (e.g. in a spreadsheet) and make sure the majority of profits doesn’t come from just a few (perhaps lucky) trades.

2) Communicate with the vendors and get a picture of the (wo)man behind the system.

I find it interesting that you would judge a system where most of the profits come from a handful of trades as being lucky. Presumably you also think a system with a high percentage of wins that implodes when a big loser comes is a perfectly sound system and was just unlucky.