A Complete Guide to the Futures Market, 2nd Edition

CHAPTER 19

Testing and Optimizing Trading Systems

Every decade has its characteristic folly, but the basic cause is the same: people persist in believing that what has happened in the recent past will go on happening into the indefinite future, even while the ground is shifting under their feet.

—George J. Church

■ The Well-Chosen Example¹

You’ve plunked down your $895 to attend the 10th annual “Secret of the Millionaires” futures trading seminar. At that price, you figure the speakers will be revealing some very valuable information.

The current speaker is explaining the Super-Razzle-Dazzle (SRD) commodity trading system. The slide on the huge screen reveals a price chart with “B” and “S” symbols representing buy and sell points. The slide is impressive: All of the buys seem to be lower than the sells.

This point is brought home even more dramatically in the next slide, which reveals the equity stream that would have been realized trading this system—a near-perfect uptrend. Not only that but the system is also very easy to keep up.

As the speaker says, “All it takes is 10 minutes a day and a knowledge of simple arithmetic.”

You never realized making money in futures could be so simple. You could kick yourself for not having attended the first through ninth annual seminars.

Once you get home, you select 10 diversified markets and begin trading the SRD system. Each day you plot your equity. As the months go by, you notice a strange development. Although the equity in your ...