The Dangers of Real Live Results : No Understanding, No Meaning

In the world of retail commercial automated trading systems there is one thing that goes above others when people determine whether or not they want to buy an automated trading strategy : “investor access verified live results”. One of the first things newbies get told when they are faced with the challenge of finding a profitable commercial system is that they shouldn’t buy anything that doesn’t have proof that it can work under live trading conditions with real money. Although this advice seems sound at first it is in fact very dangerous to rely so heavily on the live performance results of commercial trading systems and this notion that “live results are everything” ends up with people buying systems which are only going to become headaches in the future. On today’s post I am going to talk about the problems with “real results” why it is dangerous to focus on them and how a person should approach a trading system to truly evaluate its merits.

What could be wrong with live results ? Certainly it makes sense to rely almost entirely on live results since they show you what the system can “actually do” on the market. If a system is making money there, right now, it is “walking the walk” and therefore it must be a system worth buying. The problems with this “live testing” become obvious when we look at the way in which it is being done and what it is actually telling us about the trading strategies being used.

The problem with live trading results is that none of them are long enough and statistically short term results can follow almost any distribution. You then have systems with less than 5 years of live testing which merely show you a few months or just a year and a little bit of real market results and you are supposed to infer from this if the system is actually going to be profitable in the longer term. The fact is that telling from a simple live test whether or not a system will succeed is very difficult since the live tests available are usually short.

This focus on the “live results” also leads vendors to use systems that can actually achieve significantly profitable results on live testing with a high probability (at least in the short term). This is the reason why you see people happily buying martingales and grid systems with the justification that “live results” have been very profitable up until now. It is in fact extremely hard – almost a futile effort – to convince someone that a system that has shown a +150% profit for 8 months is not worth buying because its trading tactic predicts – without doubt – that it will wipe the account in the longer term. When there is some of this “evidence of long term profitability” there is no deterrent, people will simply buy the system and learn for themselves since other wiser traders appear to be “close minded” to the traders jumping to buy these systems.

Sadly the story repeats itself over and over and over again. Someone releases a trading system with an apparently “long” testing track record of 4, 8 or even 12 months saying that the system is safe, profitable and reliable when in fact its trading tactic reveals that it is not and the live results shown are merely an illusion of profitability. Such was the fate of systems like Robominer and Forex Hacked (and many more grids and martingales) that had “extensive” profitable track records, later becoming account wiping hungry beasts no one could stop.

The problem here is understanding and meaning. Live results do not mean anything if you do not know or understand perfectly what the trading tactic behind them is doing and what the true risk of such an approach is. The most dangerous aspect of using systems based only on short term live results is that some systems – like martingales and grid trading strategies –  take a long time to show their true face and in the meantime people buy into them because they seem extremely profitable. Again, it becomes important here to remember that live results without understanding don’t mean anything, understanding is something you NEED in order to evaluate and know if a trading system really has a high like hood of being profitable in the longer term (10-20 years). If you wanted to buy a system based ONLY on live trading results then a track record of 10 years, which is conclusive proof of long term profitability, should be shown. Less than 5 years could just be a result of “luck” or “postponing risk” by using unsound trading tactics.

I have been asked a few times to post Asirikuy live results in public but I have refrained to do this because I consider it an irresponsible manner to attract people into the website. I honestly think that people who are searching for just a “set and forget” solution should not join the website and I would not like to attract them through the publication of actual live results. In the end limited short term live results – under 5 years – will lead to the attraction of people who just look for some “good live results” without a true understanding of the trading strategies used, something that ultimately leads to disappointment as the trading strategies go through their predicted draw down and profit targets. As I have always said, live results without understanding simply have no meaning.

My approach is  geared towards the understanding of trading systems and the achievement of long term success in mechanical trading through effort, education and sound trading tactics, an ideal focus for those who seek to truly learn how to do this and not simply attempt to “get a gain” without any effort to truly understand what is going on. If you want to learn more about my philosophy and work please consider joining Asirikuy.com, a website filled with educational videos, trading systems, development and a sound, honest and transparent approach to automated trading in general . I hope you enjoyed this article ! :o)

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