Market Repetition

"You can expect future results
to be like those of the past."

'Just look at how this system would have traded the soybeans last year.'

This invitation is followed by a set of trade results and other 'facts' - and perhaps a price chart showing 'buy' and 'sell' signals.

Why do you see advertisements like that?

The people who produce this material are saying - 'this is what the beans do and this is what my system does - and this is the sort of results you can expect when you bring the two of them together'.

Is there any value or truth in statements like this?

None, they are referring to past history which will not repeat itself.

They are not telling you what their system would have done in the beans outside the period they are referring to.

They are not telling you what their system would have done with other commodities. Or are they suggesting the system is 'beans only'?

If the past is past - why do traders do historical testing?

A market goes up, a market goes down. There are sharp price corrections and there are times when a market goes flat. At other times the market is zigzagging wildly.

All these things happen at some time or other in all of the markets. There are long downward trends too as well as upward ones.

As a commodity trader, you want to know how your system is likely to trade this miscellany of events and what sort of return it is capable of producing and at what level of risk.

You can only assess this by using some real market prices and historical prices are the only ones available!

If you select a lengthy time period, the historical prices will contain all the different types of price movements that are likely to happen. With this material you will be able to evaluate your system and assess whether it is capable of meeting your requirements.

Because you are using historical prices, it doesn't mean you expect the past to repeat itself. It certainly will not. Neither does it mean that you expect your overall results to be similar - they will not.

You are trying to see how your system trades the markets and how it behaves in different situations. How well does it exploit winning opportunities? What is it doing when the markets are going nowhere? Etc.

You will also want to pinpoint the strengths and weaknesses in your system to encourage or discourage different characteristics.

Past price history is essential to enable all of this to be done but new traders should remember that future results will not be like those of the past.

All system performance claims made by others should be viewed with skepticism - until you have personally evaluated them.

 

Modus Trading
Contact David

Copyright David Bromley 2006
All Rights Reserved.

 

 

 

 

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