System Selection

"You need a different system
for different commodities."

When studied in detail, each individual market appears to have its own character and little quirks show up on the charts that suggest it is different from other markets in some small ways.

There is nothing wrong with paying attention to these details when you are considering what system rules you might use - in fact it is to be encouraged. However, you will ultimately need to decide on the common set of rules you will use to trade all your markets!

It is a mistake to consider using different rules for different markets - for example, this system for currencies, that system for grains etc.

Professional traders do not do this because they regard any discrimination between different commodity markets as curve fitting.

The expression 'curve fitting' is a shorthand way of saying that you fit the system rules to the price information for the purpose of producing better results.

When you practice curve fitting you are searching for the best results you can obtain by back-testing your system against historical prices.

If the system you are using gives good results on some commodities but not others, then why not use a different system for the 'others' which gives better results for them? That way, you improve your total results.

Traders who fall for this idea are always disappointed to find that they have been caught out - by relying on past circumstances being repeated. The markets change all the time and the more discrimination contained in your system, the less successful it is likely to be.

Having selected the list of commodities they will trade, professional traders invariably treat them all equally and trade them with the same system and rules.

Indicators can be used to sense different conditions that might arise at any time on any commodity. For example, a variable may be used to indicate the degree of volatility prevailing in any market. But, like any of the system rules, indicators should operate the same way for all commodities.

Curve fitting comes in many guises. In general, it is definitely not a good idea to have different systems for different markets.

 

Modus Trading
Contact David

Copyright David Bromley 2006
All Rights Reserved.

 

 

 

 

[Close This Window] Sample content here.