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Trading Systems - What`s the Deal With Hypothetical Results?
By Markus Heitkoetter


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If you have been looking into trading systems, then you realized that most published results are marked as hypothetical. This fact might have made you a bit skeptical. Does it mean that the system won`t work in real time?

The answer is no. Published results should always be marked as hypothetical, even if they have been achieved in "real" trading. Here`s why:

- It is impossible to predict the slippage when using stop or market orders. Two traders, let`s say YOU and John, place an order at the same time, and John might experience 1 tick slippage, while you are filled right on your specified entry price.

- You don`t know whether a limit order will be filled or not. If your trading system requires the use of limit orders, you might experience the following situation: Your order is filled, John`s isn`t, and the market retraces. While you took some profits using a limit order, John is still in the trade and sees his profits shrinking, and in the worst case turning into a loss.

- Another factor is the account size: If John is trading a rather small account, then his broker might liquidate his position because he experiences an intra-day drawdown that issues a margin call. Many electronic platforms are set up in such a way that they immediately liquidate a position, even if the market turns around and he would end the trade with a profit. John then experiences a loss, while you might realize profits on the same trade.

- What about the ability to withstand losses and your discipline to follow the trading strategy no matter what? Let`s say that after a couple of losses John decides not to follow the system any longer, and that`s exactly when the system produces some winners. You strictly followed the system and realized these profits, while John is missing them.

- Published results are always PAST results. If more traders would have been trading the system, the prices might have behaved differently. There could be a difference in price movement when 100 traders try to enter the market at a certain price point instead of only 1 trader. And what if 1000 traders placed a 2-lot order at a certain entry signal?

All these factors cannot be fully accounted for when publishing the results. That`s why every serious vendor should mark his results as being hypothetical.

Back to your question: "Does this mean that the system won`t work in real time?"

No. It just means that you should be aware of the limitations of past performance results.

No serious vendor can guarantee that a trading system will make profits in the future, but professional development and thorough testing of a system increase your chances of making money dramatically. .

Markus Heitkoetter is a 15 year veteran of the markets and the CEO of Rockwell Trading.

For more free information and a free eBook "How to make money with trading systems" visit http://www.rockwelltrading.com and http://www.futures-trading-systems.net.

Article Source: http://EzineArticles.com/?expert=Markus_Heitkoetter

For more information about this article and/or the author visit http://www.futures-trading-systems.net

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