We’ve all seen the ads for commodity trading systems that state returns in excess of 100 percent a year. Actually, that is being kind. Many of these ads state returns in excess of 200 percent a year, even though a small disclaimer informs the potential buyer that the returns are based on hypothetical results.
It sure sounds good to be able to buy a commodity trading system that makes all the trading decisions for you…and make 200 percent returns a year!
This sure beats having to slug it out all year in the markets to make a respectable return.
Many people just see the dollar signs and don’t make the effort to do some simple math. If you invest $10,000 and make a 200 percent annual return on this money every year, you will have more than $590 million in 10 years. Do you really think that is going to happen from a trading system that probably costs only a couple grand?
It is certainly easier to make a higher percentage return on a few thousand dollars than it is if you are managing in the hundreds of millions. However, it doesn’t take that long to get there at 200 percent annually. These returns just aren’t sustainable, so don’t buy into the hype even if the software seller says that individual results will vary.
There might be some decent commercial trading systems out there, but they all fall shy of promised returns. Most developers have good intentions, but anyone who has traded in the real world for a number of years knows that returns always wind up less than expected.
Backtesting is very useful to give you a good idea on what has happened in the past and how well your system might perform in the future. But, you have to be realistic on what will happen in the future. If back testing shows a 30 percent return over the last 5 years, you can bet that you only have a marginal system.
An explanation for this is the same thing that happens when you look at charts. The market begins making a chart pattern that entices you to make a trade. This quickly results in a loss and the original pattern doesn’t even show up on the chart after some time has passed. The reason is that the technical pattern morphed into another pattern. Research or back testing might not have even caught the trade, but in the heat of battle you would have taken the trade and lost money.
In reality, most trading systems you can buy are not going to take you to the promised land. Some might give you decent returns for a year or even a number of years. However, most systems fall short for most traders as they go through the inevitable drawdowns. Money managers who manage billions of dollars don’t hire teams of Ivy League grads for no reason. They create their own trading systems and they constantly evolve because the markets constantly evolve.
There is a good chance that any system you buy off the shelve will fall victim to an evolving market. There are some commercial systems that have been tested in real time from third parties that show average returns above 100 percent. I have to say that I don’t know anyone who has actually traded one of these system for 10 plus years and had those returns.
It is very enticing to think you can buy a system off the shelf and achieve spectacular returns. The fact is that there is no substitute for hard work. People don’t make fortunes from the market by trading and researching part time. Most traders who have made fortunes over the years, have put in the time and research to make it happen. They were also able to adapt to changing market conditions. This is something that most commercial trading systems lack.
It sure sounds good to be able to buy a commodity trading system that makes all the trading decisions for you…and make 200 percent returns a year!
This sure beats having to slug it out all year in the markets to make a respectable return.
Many people just see the dollar signs and don’t make the effort to do some simple math. If you invest $10,000 and make a 200 percent annual return on this money every year, you will have more than $590 million in 10 years. Do you really think that is going to happen from a trading system that probably costs only a couple grand?
It is certainly easier to make a higher percentage return on a few thousand dollars than it is if you are managing in the hundreds of millions. However, it doesn’t take that long to get there at 200 percent annually. These returns just aren’t sustainable, so don’t buy into the hype even if the software seller says that individual results will vary.
There might be some decent commercial trading systems out there, but they all fall shy of promised returns. Most developers have good intentions, but anyone who has traded in the real world for a number of years knows that returns always wind up less than expected.
Backtesting is very useful to give you a good idea on what has happened in the past and how well your system might perform in the future. But, you have to be realistic on what will happen in the future. If back testing shows a 30 percent return over the last 5 years, you can bet that you only have a marginal system.
An explanation for this is the same thing that happens when you look at charts. The market begins making a chart pattern that entices you to make a trade. This quickly results in a loss and the original pattern doesn’t even show up on the chart after some time has passed. The reason is that the technical pattern morphed into another pattern. Research or back testing might not have even caught the trade, but in the heat of battle you would have taken the trade and lost money.
In reality, most trading systems you can buy are not going to take you to the promised land. Some might give you decent returns for a year or even a number of years. However, most systems fall short for most traders as they go through the inevitable drawdowns. Money managers who manage billions of dollars don’t hire teams of Ivy League grads for no reason. They create their own trading systems and they constantly evolve because the markets constantly evolve.
There is a good chance that any system you buy off the shelve will fall victim to an evolving market. There are some commercial systems that have been tested in real time from third parties that show average returns above 100 percent. I have to say that I don’t know anyone who has actually traded one of these system for 10 plus years and had those returns.
It is very enticing to think you can buy a system off the shelf and achieve spectacular returns. The fact is that there is no substitute for hard work. People don’t make fortunes from the market by trading and researching part time. Most traders who have made fortunes over the years, have put in the time and research to make it happen. They were also able to adapt to changing market conditions. This is something that most commercial trading systems lack.