When should an investor start following a system live?

Well there are two schools of thought here: (Gamblers only read #2)

#1. if you are an institutional player you will look at the daily returns and figure out the daily drawdown profile over time… and then figure out if the returns are randomly distributed (runs test in excel - I can produce upon request). If the returns are random then probably invest after a couple of losing trades or an average drawdown spike - if not random (which is rare) then wait for a deeper drawdown spike before investing - and then stick with it for a long time. Good traders know the math of their systems well… talk to them.

#2. If you are a “get rich quick” type private investor you will jump aboard any strategy showing huge returns on a very high win rate as it makes a new equity high.Guess what happens next.
When following a good system, as soon as a totally normal drawdown occurs you will bail out… only to see it make new equity highs a short while later.

Now it is clear which is better… #1 of course. Were there huge red flags raised by Madoffs returns… yes… he did not have a losing month for a very very long time… in a world well described by mathematics even large institutional funds were fooled by Madoffs numbers… because they got greedy and lazy.

Rule #1 - Nobody wins 100 % for long… option sellers are the only profile that can win for long stretches occasionally, and then get killed by their -ve gamma. It is simply a question of time. Anything under 30 trades in anything other than long term swing trading is not statistically significant.

Rule #2 - leverage… The old traders adage that not risking more than 2 % per trade does protect your ranch. Even being well diversified in different systems will not protect you from over leveraging.2 % is too small a number for some…and with good system selection you can bet more aggressively… just do your homework first

Rule #3 Oh and last but not least talk to the system vendor and find out more… and if they are not/not planning to be TOS certified find out why before your account does.

If you are however someone who likes to be entertained rather than generate longer term wealth, then ignore all this and enjoy the ride. Good trading to all.


Good advice, thanks.

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Waiting for deeper dd according to advice #1, you can lose a streak of profitable trades while you are waiting. Or, assuming that current dd is deep enough, you can jump in and get a streak of losing trades. Which will be new historical max dd.


I will look, How the developer recover from high DD and I will need to see more data. I am looking longer period of time. Even some developers have long period time and sometime 1 mistakes can buried all profits. You can imagine if we are talking a new developer with short period of time.

Thankyou for your comments Andrey - There is always the possibility that you can miss out on a streak of winning trades - but the main point of the post is to invest systematically knowing the approximate odds of what you are doing. This becomes an important point when deciding when to up the size of a particular strategy. Regards and good trading

I believe these are the main words. Other depends on your goals: jump in and get easy money during free trial, sign up for long term investing with conservative system or set a part of the capital for risky system with high return and high dd or even martingale.