In the investment world most of what we read and hear about is meant to get us stimulated into taking some sort of action. It is a world lead by the best marketers in the business – second to none. After all we are dealing with the financial market that accounts for about 40% of the current GNP. It all starts at the branch bank levels asking you to do your banking (personal savings and borrowing) up to the major players on New York competing for a share of the lucrative IPO and Mergers business, and the in-between exchanges competing for a share of the stock trading business. However our focus here will be the individual and institutional firms that are purchasing, installing o hiring traders that they believe will be able to help them achieve above average returns in the equity, derivatives, currency and bond markets.

If you have enough data and you proceed to do a lot of testing you will no doubt find a profitable trading system. There are many ways to arrive at this point but for example purposes let review a moving average cross-over system. The best way to make the system fit is through optimization. Lets run moving averages from 1-100 days in any combination and chose the system that produces the greatest profit. With over a hundred variables to work with, one must surely produce remarkable gains. Our first impression will be that we have discovered the holy grail of trading. Next we will tell all our friends about our remarkable discovery to tell them how smart we are. However we will never reveal how the details of the system, there are confidental. We have finally outsmarted the market and will never lose money again.

The other way that we will have come into a trading system will be flipping through the Stocks and Commodities or Futures Magazine. Why do they always place the trading system ads at the end of the magazine, maybe by the time we get there we have delusions of greatness about being a super trader. The trouble all starts when we put our hard earned money on the line, only to discover the truth.

How do we know what happens to the average person seeking trading systems? We have been there and seen numerous others make the same mistakes. If you believe the road to quick riches in the markets are through this method, we wish you luck. Why do we make the same mistakes? The markets are full of people just like us and mistakes are plenty, it is the hard work that keeps us from making and great strides into market anomolies. Further when we have a theory and the first test that we come upon that proves that it will make out-lavish market profits we begin to find ways to confirm it. This is exactly the opposite of what we should be doing, we should start to find ways to prove that it is random (just a fluke) and do more testing to prove that it does not work.

Here is a short list of tricks used by marketers to get into your pockets:

Optimized Strategies

Recommendations by Celebrities (look even famous people (hero) like it)

Recommendations by persons with initials at the end of their name (they are smart and they use it)

Recommendations by Ordinary folks (if they did it so can I)

Specific Start and End Dates (bottom of bear 73 to top of 2000)

Listing only the latest year of performance (but have been in business 10)

Showing their best hand (market you best performing fund)

Small sampling or even bad data

Outragous Claims so big they must be true

High Accuracy Rate (never be a loser again)

Guarantee ( they know you will use it, they will probably not honor it either)

New Updated Systems (when the old ones stop selling they introduce a new one)

Stop Loss and Exits (this is the easiest way to boost performance-just cut out of few big losers)

There are numerous others but the point is buyer beware. Lets think of the markets like a gamblers paradise that is open somewhere in the world at all times. There is always a game to be played and the players are numerous and faceless. When was the last time you walked away from a casino with money in your pocket – you quite will you were ahead. As in a casino or games of chance we only need a slight edge to walk away with a small fortune. Casino’s were not built to give money away and people selling trading systems are not giving away their best hope at winning in the market. In this game you are paying for something you are not getting and the more you pay has no correlation with the quality of the product you are receiving. It is common knowledge in the fund industry that profits are made from how much money you manage and not the profits you generate. It is a sad state of affairs when the best are not paid accordingly, thus another reason for the rise of the hedge fund industry.