Highlights of System Development

Today I want to review a couple major points that have been covered in my last two blog posts.

Trading represents a dream because I am able to work for myself from the comfort of my own home on my own schedule.  As hard as it is in this economy to get any job, to get a gig like this will demand out of me something the vast majority of others are not putting forth.  This just makes sense because otherwise, everyone would be doing it!  For starters, I must be willing to put in extensive legwork at every turn whether or not it ends up being required.

Trading as a business can never coexist with laziness.

The trading landscape for independents is like a hot desert littered with mirage.  I am constantly bombarded with alluring returns and trading strategies that sound good.  Greed pushes me to gamble with speculative trades on a whim.  Wishful thinking accelerates the process.  Other cognitive heuristics also combine to stack the deck against me.

System development must be extremely thorough to flush out any oversights that may lead to false profit expectations.  One could say the whole point of system development is to highlight the arbitrary and determine it to be lucky or good:  discard the former and implement the latter.

This was the idea behind realizing the need to backtest 3-, 4-, 6-, and 7-day trades before moving forward with a 5-day SPY VIX trading system.  Failure to perform these additional steps could leave me unknowingly chasing an illusion.  When lucky, traders will eventually find out by losing precious capital and often going bust.  When good, traders are able to stay in the game.

All trading recommendations, whether technical strategies or stock screens, are due only one response:  backtesting within the confines of a complete system development process to assess how likely they are to perform in the future.  This is a labor-intensive process where many false leads and dead ends potentially await.