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Trading Systems 101: Trading Systems Evaluation - Levels Oct 25th

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Dear Traders,

Trading Systems 101: Filtering out the noise for proper evaluation

As we dive further into thetwenty firstcentury, manyfantasyand futurist ideas from the past have slowly become a reality: watches double as phones, robots can clean our homes, and even though they can't fly yet-our cars can greet us and give us directions. Many people believe that the evolution of all this technology has led to a decrease in human interaction, and while that may be true and a negative in some aspects; there can be an advantage when the emotional roller coasterof the human mind is taken out of the question.

Despite even the most logically set minds on Wall Street, psychology plays a huge role in the market. Emotions run high, there are hasty impulses, and often a lack of self-control. Most trading professionals will agree that the human element can, at times, severely impact the trading goals and strategies of the trader as they strive for profit and attempt to escape the pain of losses. This is where technology can save us from ourselves.

Well-designed automated trading systems ( visit: can offer the possibility of neutralizing the main psychological enemies of traders. Algorithmic (Algo) trading systems are written by investment professionals who know the markets intimately and offer a fast and wisedecision makingprocess that eliminates emotion, procrastination, and irrational decisions that human nature draws out.

That being said, I get too many emails about systems claiming to have the crystal ball or producing results that are too good to be true. 99.9% of the time, if it is too good to be true it is simply not true.....

Yet there more than a few solid, performing trading systems out there that can help investors achieve higher than average results; many with very little correlation to the stock market as most systems I deal with are in the field of futures and commodities.

So how does one go about evaluating trading systems trying to decide if a certain system or portfolio of systems might be a good fit for his/her investment objective?

The following pointers/ questions you can ask an investment professional can help you filter out and screen possible trading systems for you to participate in:

  1. Know yourself! How aggressive or conservative are you? How much risk capital do you have in mind? Do you have preferences between systems that are day trade only versus long term? Perhaps you would like to avoid selling options as a method?
  2. Who isbehindthe system? Who are the parents of this "trading child"? My common sense would lean towards investment professionals who are registered with regulating bodies such as the NFA, SEC, FINRA etc. They are under more scrutiny to usebalancedapproach in marketing their systems and presentation of trading systems. Even if they are registered, it would be wise to check how much experience they have, their credentials, and their background.
  3. Start picking the systema part: Does it have live results?Back testresults only?Back testand forward test results? If a system ONLY hasback testingresults, I personally recommendto stayaway until it has either forward/simulated results or much better live results. Any experienced trade system designer would first design the system, test it over sample time data, and then would leave out time data passed theback testsample so he can test the system on time sample it was not designed based on.
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About the author

Ilan Levy-Mayer has been a commodities broker for over 15 years, and holds an MBA in Finance and Marketing from Hebrew University in Jerusalem. Ilan is currently the Vice President and a Senior Broker at Cannon Trading Company . He is also a CTA of Levex Capital Management and his daily blog was voted the #1 Futures Blog from Trader's Planet.

His experience in the industry dates from the beginning of online trading, and he has also developed several trading systems over the years. In addition, Ilan has written several articles about trading methods and trading psychology, and has been quoted and published several times in SFO magazine, Futures, and Bloomberg. He has been invited to speak at the Chicago Board of Trade, a significant distinction.

Ilan specializes in analyzing the markets based on timing methods, proprietary technical indicators, using support and resistance levels and looking at multiple time frames.

Take a step in the right direction and contact me today, Toll-Free: 800-454-9572 or direct: +310-859-9572. You may also directly e-mail me, Send mail.


Disclaimer: This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts here in contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgement in trading. 

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