On my way to San Diego I began reading The Black Swan by Nassim Nicholas Taleb. I am still working on the book but I wanted to share some thoughts that can relate to trading.
 
The author discusses how it is in our nature to use past instances that corroborate a hypothesis and use that as evidence to prove it. Though it is much easier to get closer to the truth by finding negative instances that do not support the hypothesis – essentially proving that the claim is wrong. Take his example on wanting to find out if you are healthy.  Say you go to your doctor and they find that you have a disease – this clearly shows with 100% certainty that you are not healthy. But what if they do not find anything out of the ordinary during your check up? It does not prove with certainty that you are healthy, it just corroborates that you may be healthy.
 
Think about this for a second. Many new traders get too caught up in finding/shopping for a chart based system. Systems “proved” to work by finding those instances that corroborate that the system makes money. Some of these systems find a way to fudge with the risk parameters so that you can maximize the profits and keep a handle on the drawdowns. But is doing all this proving with certainty that the system works?

In my opinion there are too many systems out there that have been built on this foundation. And the worse part is that many are willing to bet it all on a system or an idea orginated from some math box that spits out a probability number.

After spending some time at the traders expo I feel terrible for people who are attracted to these systems and end up losing money on them. The truth is that trading is hard and requires plenty of skill development.

So to those of you out there shopping for the holy grail of systems, I’m sorry to discourage you as it does not exist. Yes some systems can be profitable with the right risk management and proper trading skill development. There is a bit more to trading than just adding indicators onto a chart.

For those of you newbies my best advice is to try to find a system/service/training program that allows you to develop trading skills. Remember to take a skeptic stance on marketers who claim systems are “proved” to make money.

Happy trading this upcoming week.