The Pseudoscience of Trading System Development (Part 4)

Today I want to continue through my e-mail correspondence with Perry Kaufman about his April article in Modern Trader.

Kaufman e-mailed:

     > are not particularly sensitive to changes
     > between 90 and 100 threshold levels, so I
     > pick 95… Had it done well at 95 and badly
     > at 90, I would have junked the program.

Junking the system and not writing an article on it would be the responsible thing to do. He can claim to be that person of upright morals but it doesn’t mean I should trade his system without doing the complete validation myself. I’m quite sure that even he would agree with this.

In response to my comments, Kaufman sent a final e-mail:

     > I appreciate your tenacity in pursuing this…
     > I’m simply providing what I think is the basic
     > structure for something valuable. I had no
     > intention of proving its validity scientifically…
     > I’m interested in the ideas and I will then
     > always validate them before using them. For
     > me, the ideas are worth everything.

Kaufman essentially absolves himself of any responsibility here. He did nothing wrong in the article but I, as a reader, would be wrong to interpret it as anything more than a collection of ideas. It may look like a robust trading system but I have much work to do if I am to validate it and adopt it as my own.

What can give me the confidence required to stick with a trading system is the hard work summarized by the article but not the article itself. If the sweat labor is not mine then I am more likely to close up shop and lock in maximum losses when the market turns against me because paranoia, doubt, and worry will come home to roost. When I do the hard work myself (or with a team of others to proof my work) then I have a deeper understanding of context and limitations, which is what gives me the confidence necessary to stick with system guidelines.

If this sounds anything like discretionary trading then it should because I have written about both in the same context. It’s also the same reason why I recommend complete avoidance of black box trading systems.